Crude futures went for a wild plunge on Monday, giving up Friday’s hard-fought gains in the blink of an eye. The oil market mayhem? Ceasefire talks between the bitter Israeli-Hamas rivals and handwringing U.S. inflation data pointing to prolonged high interest rates.
By the lunch hour in Asia, Brent crude, the global benchmark, had spilled over 1% or nearly a dollar to $88.52 per barrel. U.S. West Texas Intermediate (WTI) crude wasn’t far behind, bleeding 83 cents or just under 1% to $83.02.
The spigots opened after a Hamas delegation packed their bags for Cairo to engage in truce negotiations with Israeli officials. The high-stakes pow-wow offers a potential off-ramp from a dangerous escalation after Israel’s foreign minister floated the possibility of delaying a ground invasion of the teeming Rafah region if Hamas releases Israeli hostages.
From the White House, a spokesperson revealed Israel pledged to lend an ear to U.S. concerns about the humanitarian fallout of a Rafah onslaught that could displace over 1 million Palestinians.
“Stepped-up efforts to mediate a ceasefire between Israel and Hamas moderated geopolitical tensions and contributed to the weak opening on Monday,” remarked Tony Sycamore of IG in a note injecting some much-needed analysis.
But the bearish deluge was equally fueled by Friday’s U.S. inflation data which exhibited persistent price pressures. The inflation rate clocked in at a lofty 2.7% annually through March, overshooting the Fed’s 2% target.
For oil bulls, the hotter-than-desired inflation print spelled potential trouble ahead. With pricing power stubbornly high, the Fed may be forced to keep interest rates elevated for longer to stabilize volatile price swings rippling through the economy.
As independent analyst Tina Teng articulated: “The sticky U.S. inflation sparks concerns for ‘higher-for-longer’ interest rates, leading to a stronger U.S. dollar and putting pressure on commodity prices.” A muscular greenback makes oil, priced in dollars, costlier for most buyers across the globe.
Darkening the morose mood, China’s industrial profit growth downshifted into a lower gear in March. The latest sign of sputtering domestic demand from the world’s second-largest economy and crude guzzler.
While crude’s Monday misery marked a stark reversal from Friday’s buoyant sentiment, the volatility fits the market’s current schizophrenic behavior. Last session, Brent tacked on 49 cents while WTI climbed 28 cents, buoyed by supply risks emanating from tinderbox Mideast geopolitics. Though drone strikes on two Russian refineries likely commanded little lasting impact.
Looking ahead, oil’s gyrations may persist in lockstep with updates on the Israel-Hamas negotiations, China’s economic trajectory and evolving U.S. monetary policy landscape. As the push-pull dynamics whipsaw sentiment, traders must buckle up for the wild ride looming over crude markets in the coming weeks and months.
