WTI pulls back from session highs above $80.00 to $79.00 area as US equities drop at the open

Amid US equities coming under some selling pressure at the Tuesday equity open, front-month WTI futures have pulled back from earlier session highs to the north of the $80 per barrel level and are now trading back in the $79.00 area. That still leaves WTI prices up more than 50 cents on the day and the oil bulls will still be eyeing a test of last week’s highs in the $80.50 area. Indeed, oil strategists continue to view the spread of the Omicron variant as not likely to leave a meaningful dent in near-term oil demand.

Meanwhile, despite the recent hawkish shift in market expectations for Fed tightening that has weighed on US and global equities, with four hikes now seen in 2022 coupled with quantitative tightening, the outlook for global growth in 2022 remains strong. This is what matters most for demand rather than financial condition-focused crude oil markets. The implication might be that, in the coming weeks/months, as long as Fed tightening isn’t seen as a “policy mistake” (i.e. that slows the economy unnecessarily), oil may remain a relatively safe risk asset even if Fed tightening expectations continue to weigh on equities.

OPEC supply woes remain in the headline and could also be offering some support to the price action. Libya has faced further setbacks in its efforts to bring production back to 2021 peak output levels of roughly 1.3M barrel per day (BDP). The country’s National Oil Corporation (NOC) said on Tuesday that it would be suspending oil exports from its Es Sider terminal due to bad weather and lack of storage. As a result, it's Waha Oil Co. (which exports oil through the Es Sider terminal) would be reducing production by 50K BPD and this could rise to as much as as 105K BPD. Despite this, the NOC said that output was back to 896K BPD from the 729K BPD reported last week.

Ahead, private US oil inventory data is scheduled for release at 2130GMT ahead of Wednesday official EIA US inventory report which is seen showing a seventh consecutive week of draws, with a further 2M barrel drop in stocks expected.