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Crude Oil Holds the High Ground as Mood Boosted by China PMI. Higher WTI?

Crude Oil Holds the High Ground as Mood Boosted by China PMI. Higher WTI?

Daniel McCarthy, Strategist

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Crude Oil, WTI, Brent, China PMI, Japanese Yen, Nikkei 225, Fed, Treasuries - Talking Points

  • Crude has had another solid week with markets seeing a rosy outlook
  • The Fed reminded markets of their intentions with inflation as enemy #1
  • What does the underlying market structure say about crude? Will WTI go higher?
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Crude oil has held onto gains made overnight today with the WTI futures contract up over 7% going into the end of the week.

This comes on the back of a 3.5% gain last week as it continues to recover from the 3-month low seen earlier this month. The WTI contract is near US$ 74.50 bbl while the Brent contract is a touch above US$ 79 bbl.

The market was lifted somewhat by Chinese manufacturing PMI coming in at 51.9 against the 51.6 forecasts for March, slightly below February’s 52.6 number. Non-manufacturing PMI was 58.2 against 55 anticipated, up from 56.3 prior.

Gold is steady near USD 1,980 while APAC equities followed Wall Street’s lead into the green today with a buoyant mood across the board.

Japan’s Nikkei 225 has been the outperformer, climbing over 1% at one stage. A weaker Yen appears to be assisting with USD/JPY topping out at 133.50 earlier in the day. That’s almost four big figures from the low of 129.64 seen at this time last week.

Japanese jobs data, Tokyo CPI, retail sales and industrial production all outstripped estimates today. The details can be viewed in detail here.

Futures are pointing to a positive start to the North American equity session. Other currency markets have been relatively quiet so far today.

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Comments yesterday from Susan Collins and Neel Kashkari from the Fed appear to have pushed the needle moderately toward a 25 basis point hike at the January Federal Open Market Committee (FOMC) meeting.

They both highlighted the need to tame inflation. Their comments were compounded by US core PCE printing hotter than expected, coming in at 4.4% year-on-year to the end of December rather than 4.3%.

Treasury yields have barely moved today although the 1-year note is back 4.70% and most of the curve is higher over the week.

Looking ahead, after UK GDP, there will a slew of European inflation gauges before Canadian GDP data.

The full economic calendar can be viewed here.

WTI CRUDE OIL MARKET STRUCTURE ANALYSIS

The RBOB crack spread appeared to serve as a harbinger of the recent rally in WTI crude and it remains at a relatively elevated level.

Volatility as measured by the OVX index has eased somewhat with the price appreciation.

The market is fairly neutral when looking at backwardation and contango which may reflect a degree of comfort with the higher oil price.

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Chart created in TradingView

--- Written by Daniel McCarthy, Strategist for DailyFX.com

Please contact Daniel via @DanMcCathyFX on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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