Crude oil prices rebounded strongly at the second trading session of the week after Monday’s most recent rally running out of steam, as the greenback strengthened and made commodity assets in the greenback more expensive.
At the time of writing this report, Brent crude futures surged by 0.74% to $68.50 a barrel falling below the $70 mark, after jumping past it on Monday.
Oil traders heaved a sigh of relief after the Saudis disclosed that Sunday’s attack on a storage tank farm at the Ras Tanura terminal was successfully neutralized and there was no direct impact on oil production.
Recall a few days ago, Yemeni Houthi rebels attacked the Saudis’ oil terminal, which is capable of producing 6.5 million barrels a day. It was the most serious threat the world’s leading OPEC’s exporter had faced since September 2019, when a key oil facility and two oil fields came under siege.
Stephen Innes, Chief Global Market Strategist at Axi, in a note to Nairametrics, broke down the macros pushing oil prices down, taking to account that the dollar and U.S Treasury yields seem to be taming oil bulls’ upside.
“Oil prices fell on Monday, hours after an early sharp price rise caused by a drone attack on Saudi oil infrastructure which missed their mark.
There has also been a change in music over the past 24 hours as oil falls on the back of a stronger US dollar.
“Traders also come to terms with some of the National People’s Congress (NPC) takeaways that revolved around less credit and stabilization in Chinese markets’ leverage.
“All the while, higher US yields continue to tighten financial conditions tempering the reflation trade, triggering more profit-taking from cross-asset players that were using oil as a speculative reflation hedge.”
Bottom Line: Oil macros however remain incredibly supportive, especially with Saudi Arabia in full control and pursuing a tight oil policy.