Oil prices jumped on Tuesday morning, paring overnight losses ahead of the API inventory data report.
At 09:02 AM, WTI was trading 1.60% up at $43.31, with Brent crude changing hands at $46.07, up 1.74% on the day.
The broader rally in equity markets, expectations of yet another draw in crude oil stocks, and ongoing weakness in the U.S. dollar are fueling the rally in oil this morning.
The ICE U.S. Dollar Index, better known as DXY, has fallen precipitously after hitting a high in March.
According to FxStreet, the DXY ‘’dropped to levels last seen in April 2018 in the 91.80/75 band, opening the door for the continuation of the downtrend in the short/medium-term horizon’’.
The dollar took another dive last week when U.S. Federal Reserve Chairman Jerome Powell announced a new inflation target of 2 percent, making dollar-priced commodities cheaper for global buyers.
Oil has started September on a positive note, but global demand concerns remain the number one risk.
Yesterday, Oilprice.com reported that demand in China has driven the current rise in oil prices, but weaker crude imports could pour cold water on the rally, especially if the demand recovery in Europe and the U.S. fails to materialize in September.
The current rally in equities and the fragile recovery of the economy in the U.S. and the E.U. is largely driven by stimulus programs, and a whole lot of extra stimulus may be needed to keep entire industries from collapsing in the next couple of months.
The next bullish catalyst for oil could come from the API, which is set to release its crude inventory data report later today.
Ahead of the release of U.S. stockpile data, analysts polled by Reuters expect U.S. crude stocks to have fallen by about 2 million barrels in the week to Aug. 28, while they expect gasoline inventories to fall by 3.6 million barrels, and distillate inventories are expected to drop by 1.5 million barrels.
By Tom Kool of Oilprice.com
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