Crude oil pares losses, WTI rebounds into congestion

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West Texas Intermediate (WTI) rebounded on Friday, recovering from a fresh 12-week low set early in the day at $76.03. The benchmark US crude remains down on the week, in the red by -2.38% from Monday’s opening bids.

A recovery in broad market risk appetite is bolstering crude oil markets after investor hopes for a rate cut from the Federal Reserve in September were knocked further back this week.

According to the CME’s FedWatch Tool, rate traders are pricing in slightly-worse-than-even odds of at least a quarter-point rate trim from the Federal Open Market Committee (FOMC) in September, steeply down from 70% odds priced in at the outset of the trading week.

US Durable Goods Orders firmly recovered in April, rising 0.7% m-o-m compared to the forecast -0.8% decline, while the March figure was revised down to 0.8% from the initial print of 2.6%.

University of Michigan 5-year Consumer Inflation Expectations also eased slightly to 3.0% for May, falling a tick lower from the forecast hold at 3.1%.

Easing inflation expectations are helping battered investor sentiment, with commodity traders still licking their wounds after a collapse in September rate cut hopes.

Fedspeak and PCE in the spotlight

Talking points from policymakers at the Fed dominated financial headlines this week as Fed officials continue to press down on rate cut hopes, pushing back with cautionary statements that it still needs more evidence that inflation will eventually drop to the target of 2% annual price growth.

US crude oil production continues to weigh on barrel bulls after supply counts snubbed forecast declines, showing another buildup in US crude oil supply lines. Energy traders were hoping for an extended decline in US supply stocks, but a surprise buildup in barrel counts from both the American Petroleum Institute (API) and the Energy Information Administration (EIA) have left speculators hoping for an as-yet-unseen uptick in demand to eat away at US pumping capacity.

WTI rebounded from a 12-week low to recapture the $77.50 level ahead of the week’s close. It continues to trade on the bearish side of the 200-hour exponential moving average at $78.05, but Friday’s bullish recovery sends US crude oil back into familiar technical congestion.

WTI has cycled the 200-day EMA at $79.03 since dipping to a low of $68.00 in late 2023. Despite holding onto gains from 2024 opening prices, WTI remains down nearly -11% from the year’s peaks near $87.20.

(Source: OANDA)