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Why Traders Have Started To Dump Crude

U.S. West Texas Intermediate crude oil futures are trading lower on Friday shortly after the release of a strong U.S. Non-Farm Payrolls report that suggests the U.S. is not in a recession and that the Fed is likely to continue on its aggressive rate hiking path.

Prices have come under pressure this week as the traders fretted over the impact of inflation on economic growth and demand, but tight supply has kept a floor under prices.

The price action throughout the week has been indicating that traders are taking the threat of recession far more seriously – meaning demand will take a hit, but today’s U.S. jobs report suggests the economy may not be headed that way. Furthermore, it could mean investors will shift their attention back to a market that is facing tight supply and producers with no capacity to change that.

Rising Rates Have Bulls Worried

After edging higher last week on worries over tightening supply, prices have fallen considerably this week on new concerns over too much supply due to weak fuel demand. The drop is fuel demand is correlated with rising interest rates that are slowing global economic growth.

If the correlation between rising interest rates and falling fuel demand continues then prices could drop a lot further since the major central banks are likely to continue to raise rates until at least September and possibly until the end of the year.

Rising U.S. rates are helping to underpin the U.S. Dollar, and…

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  • Phillip Dauben on August 05 2022 said:
    I would love to see the article address the impact of releases from the SPR on builds. They are scheduled to end in October and if demand destruction hasn't occurred by then it might paint a clearer picture of whether oil markets are artificially being propped up as we head into election season.

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