Oil Prices Forecast: WTI, Brent Crude Shaken by Surging Dollar, US Treasury Yields

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Published: Oct 3, 2023, 07:24 UTC

Amidst a climbing U.S. dollar and bond yields, the oil market faces demand pressures, raising questions on OPEC's next production moves.

Highlights

Oil prices slide by 1% in early Asian trading, pressured by a robust U.S. dollar and surging bond yields.
The U.S. dollar hits a 10-month peak, adversely affecting oil prices by making them costlier for foreign buyers.
Rising U.S. bond yields hike the storage costs for oil, prompting traders to consider depleting their inventories.
Turkey restarts a long-stalled Iraqi pipeline, easing supply constraints in a still-tight oil market.

Overview

Oil prices dipped about 1% in early Asian trading on Tuesday, influenced by a strong U.S. dollar, surging U.S. bond yields, and mixed supply cues. Brent futures were down $1.19 cents to $89.52 a barrel, while U.S. WTI crude slipped $1.06 to $87.76 per barrel.

The Dollar and Bond Yields

A soaring U.S. dollar and rising bond yields are casting shadows over the oil market. The dollar rose to a 10-month high, making oil more costly for non-dollar currency holders and potentially dampening demand. Higher bond yields also imply greater storage costs for oil, which could influence traders to further deplete inventories.

Supply Factors

Turkey is resuming operations on a six-months-stalled Iraqi pipeline, adding more supply to the market. Despite this, OPEC+ is unlikely to adjust its current production settings in its upcoming meeting, indicating a persistently tight supply.

Global Economic Signals

Mixed economic data globally adds another layer of uncertainty. While the U.S. economy showed signs of resilience, Euro zone, Germany, and Britain’s manufacturing sectors languish. China’s economic growth predictions for 2024 were cut due to a weak property sector.

Short-Term Forecast: Bearish

Given the rising U.S. dollar and bond yields, along with a mixed global economic outlook and slightly easing supply constraints, the short-term outlook for oil prices appears bearish.

The culmination of these factors suggests a complex interplay of demand and supply variables, making the oil market highly sensitive to macroeconomic indicators.

Technical Analysis

Daily Light Crude Oil Futures

With a current Daily price of 88.40, Light Crude Oil Futures are trading above both the 200-Day moving average of 77.42 and the 50-Day moving average of 84.66. This positioning suggests a longer-term and shorter-term bullish sentiment, underpinning the market’s strength.

However, the market sits dangerously close to the minor support level of 88.21. A breach of this level could potentially change the game. If this minor support is violated, traders may view it as a signal to initiate short positions, which could accelerate selling pressure and drive the price towards the main support at 82.68. Though still bullish in the bigger picture, such a move would indicate weakened momentum and could invite more sellers into the market.

The market’s proximity to minor support is a crucial factor to watch. Failure to hold this level could be a precursor to a bearish turn, even if it’s a shorter-term phenomenon within an overall bullish context.

Overall, while the market sentiment currently leans bullish, a violation of minor support could trigger a downward move towards the main support level, potentially signaling a shift towards bearish sentiment in the near term.

About the Author

James Hyerczykauthor

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.