Oil prices fall as USD moves higher

Summary:

  • Oil and Oil.WTI both trading firmly lower on the day

  • Divergence opening up with Oil.WTI weaker

  • Number of oil rigs rise for 2nd time in 3 weeks

 

There’s been some selling seen in the energy space today with both Brent (oil on xStation) and WTI (Oil.WTI on xStation) trading in the red. The declines come from a combination of factors with an increase in US drilling activity and a refinery fire in Illinois both having a direct impact on the market, while a persistently strong buck is caused indirect downward pressure on the oil prices. A notable trait in this space in recent trade is the underperformance of WTI, which has consistently been weaker than Brent in recent sessions. At the time of writing for instance, Oil is lower by 1.4% and Oil.WTI by 2.2%.

Oil.WTI has been underperforming Oil in recent trade, with US specific factors such as the rising rig count and refinery fire contributing to the divergence. Source: xStation

 

One reason for this divergence could be that in the United States, energy firms increased the number of oil rigs operating for the second time in three weeks according to the weekly Baker Hughes report. Companies added 7 oil rigs in the week to February 8th and this suggests that further supply could be forthcoming, with US crude production already at record levels of 11.9M bpd.  WTI prices were also weighed down by the closure of a 120,000-barrels-per-day (bpd) crude distillation unit (CDU) at Phillips 66's Wood River, Illinois, refinery following a fire on Sunday. Both these factors are US focused, and therefore are more likely to adversely impact WTI than Brent.

 

Another factor weighing on all commodities that are denominated in the US dollar, is the strength of the buck which has begun the week on the front foot and is gaining across the board. While the gains aren’t that great in size, they are impressive in scope with the USD higher against all its peers. 2 of the 3 biggest biggest USD gainers are the USDNOK and USDMXN, which is noteworthy as both of these pairs are sensitive to the price of oil.

The US dollar is rising across the board today, gaining against all of its peers. Source: xStation

Oil.WTI could still be carving out a longer term inverse S-H-S but the recent weakness is testing the 2nd shoulder in this setup. Price has today dropped to its lower level of the month. Source: xStation

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