U.S. West Texas Intermediate crude oil futures opened the new month under pressure, continuing the assault on prices that began on the third day of trading in October when the market was touching a multi-month high. At the start of the month the talk was bullish with predictions of another $10 to $20 to the upside. By the end of the month, the forces driving the market lower had wiped out 2-1/2 months of gains.
Traders blamed the weakness on a number of factors including the strong U.S. Dollar, stock market volatility and weakness, the escalating trade dispute between the United States and China, and rising global supply. The narrative that the market was “fragile” and that there were spare capacity issues seemed to disappear overnight. Instead, the focus shifted to the possibility that the market was oversupplied.
The rising U.S. Dollar was an issue in October because it hurt foreign demand for dollar-denominated commodities. The dollar was supported by rising interest rates which made the dollar a more attractive asset than other currencies. Essentially, it was the divergence in the monetary policies of the hawkish U.S. Federal Reserve and the other dovish major central banks that underpinned the greenback,
Safehaven buying also drove the U.S. Dollar to a 16-month high as stock market weakness encouraged global investors to seek shelter in the currency of the best performing country.
The steep sell-off in the U.S. equity markets and heightened…