- Oil prices have dropped to near a two-week low at $84.75 amid multiple headwinds.
- Build-up of oil inventories, recovery in the DXY, and inflation risks to the US economy add volatility to oil prices.
- IEA head slammed OPEC+ for oil supply cuts as it may worsen the developing nations’ situation.
West Texas Intermediate (WTI), futures on NYMEX, have plunged more than 3% to near two-week low at around $84.75 amid a build-up of oil inventories last week and rising odds for the higher peak of Federal Reserve (Fed)’s terminal rate. The oil prices nosedived after surrendering the psychological support of $90.00 as oil demand is facing multiple headwinds.
On Wednesday, US Energy Information Administration (EIA) reported a build-up of oil inventories by 3.925 million barrels for the week ending November 4. The addition of oil stockpiles weighed significant pressure on oil prices.
Apart from that, raising fears of an economic downturn in the US economy also dampens the market mood. Richmond Federal Reserve (Fed) President Thomas Barkin on Wednesday cited that Fed’s fight against inflation may lead to a downturn in the US economy, but that is a risk that the Fed will have to take, reported Reuters.
A sheer recovery in the US dollar index (DXY) also impacted the oil prices. The DXY recovered sharply as odds for higher Fed’s peak rate accelerated. Economists at ABN AMRO predicted that the Fed would shift its peak higher than the projected terminal rate to 5% (with a 25 bps rate hike in the first two monetary policies in CY2023 after a 50 bps rate hike in December). Going forward, a higher release of US inflation will strengthen the DXY and may escalate selling pressure for oil.
For OPEC+’s production cut decision, head of the International Energy Agency (IEA) Fatih Birol slammed the oil cartel’s decision to cut oil production as it might worsen the outlook for developing countries that are sliding towards recession, reported Bloomberg. He further added that the move is fueling inflation, especially in developing countries, and may require a “rethink,”
In China, a postponement in the reopening of the economy is also adding to the sell-side filters for the oil prices. Expectations of weak oil demand in the coming months due to a continuation of the no-tolerance Covid-19 approach are supporting oil bears.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD battles 1.0700 amid calmer risk tone, German ZEW eyed

EUR/USD is juggling in a narrow range just above the 1.0700 level in early Europe. The pair is sidelined amid a relatively calmer risk tone and a pause in the US Dollar decline. Markets digest the latest global banking sector developments ahead of Germany's ZEW survey.
GBP/USD remains pressured around 1.2250 as US Dollar recovers

GBP/USD is on a corrective move lower while testing 1.2250 in the early European morning. A broad rebound in the US Dollar is weighing on the pair, despite a better market mood. Investors stay cautious amid the global banking woes and ahead of the Fed decision.
Gold lingers below the $2,000 mark as the market awaits Fed’s policy decision

Gold price reached a fresh yearly high on Monday this week, with XAU/USD hitting the $2,000 mark for only the third time in recorded history; the last time was during the COVID era. The robust bull run began from the March low of around $1,800, and gold prices have not looked back since.
Coinbase argues core staking services are not securities in its letter to SEC

Coinbase submitted a comment letter to the US financial regulator asking for clarification on core staking services. The exchange explained that staking services fail every single prong of the Howey test, therefore, cannot be treated as securities.
FX thoughts for the week

Do central banks face a conflict between their inflation mandate and financial stability? The markets are still grappling with this question and confidence in the financial sector has not fully recovered. For now, central banks are responding with a conditional no.