WTI (US Oil) Talking Points:

• Crude prices look set for a third straight session of falls
• A stronger Dollar has added to the markets’ woes
• Keep an eye on Fed speakers this week

Crude oil prices have been hammered again on Monday by the stronger United States Dollar spring on global markets by last week’s blockbuster jobs report from the world’s largest economy.

January’s 353,000 increase in non-farm payrolls almost doubled economists’ expectations and has seen any prospect of lower interest rates from the Federal Reserve in March priced right out by futures markets. This has been to the Dollar’s benefit across the currency complex but has made life tough for commodities priced in it, of which crude is the star.

It is of course arguable that an economy creating jobs at the US’ current pace is not likely to be such terrible news for energy demand. However we live in a monetarist world, the Fed is running the table so markets’ take on interest-rate paths will always dominate.

The energy sphere also faces the prospect of quite plentiful supply from countries both within and outside the Organization of Petroleum Exporting Countries meeting uncertain global demand as the industrial economies battle inflation and the havoc wrought on supply chains by Covid. Leading crude importer China is a cause of particular anxiety here.

Oil prices will remain vulnerable to geopolitics as knock-ons from conflict in Gaza and Ukraine both have the potential to spring supply disruptions at any time. However we now enter a relatively quiet couple of weeks for economic data, leaving any central bank speakers in the spotlight, especially those from the Fed. Atlanta Fed President Raphael Bostic will speak on Monday, with Cleveland’s Loretta Mester up on Tuesday.

US Crude Oil Technical Analysis

Daily West Texas Intermediate Chart Compiled Using TradingView

Bulls seem to have abandoned all thought of retaking January 29’s two-month high of $79.16/barrel. Indeed, they are now attempting to defend the third Fibonacci retracement of the rise up to that point from the lows of December 13. That comes in at $72.27. If that level can’t survive on a daily close this week it may well mean further falls, perhaps putting psychological support at the $70 mark into focus.

Prices have slipped below previous, well-respected uptrend channel support at $72.44. However it is possible that the market is overdoing the bearishness a little at this point, prices are now well below their 50-day moving average, which comes in at $73.13.

IG’s own data finds traders overwhelmingly long at current levels, to the turn of some 87%. While that’s the sort of extreme which might argue for a contrarian, bearish play, given the recent scale of market falls it might rather suggest that this market is at least due some time for reflection if not a meaningful recovery.

--By David Cottle for DailyFX

https://www.dailyfx.com/news/crude-oil-prices-sink-on-strong-dollar-as-fed-cut-bets-are-off-20240205.html