WTI crude oil has settled above the 68.00 support zone after briefly falling below pre-war levels last week, with the "big unwinding" in positioning now looking spent. Traders are turning to next week's US CPI report as the next possible catalyst.
WTI crude is stuck in the 68.00-70.00 range as the war premium fades and the market consolidates. Prices dipped below pre-war levels last week but couldn't extend the breakout, eventually settling back above the key 68.00 support.
The unwinding runs its course
The big unwinding in oil positions should have run its course, which could open the door to a prolonged consolidation around current levels. The situation in the Strait of Hormuz remains murky, but there's no real breakdown for now.
Buyers are stepping in with defined risk below the support to position for a rally into the 78.00 resistance. Sellers, on the other hand, are waiting for a downside breakout to add bearish bets toward the 55.00 level next.
CPI becomes the next catalyst
The next bearish driver could come from the Fed if US data raises tightening risk. Next week's US CPI report shapes up as a major catalyst. An easing in inflationary pressures could translate into a more dovish view on the Fed and keep the downside in oil limited on better risk sentiment and demand outlook.
Conversely, an upside surprise in the data will likely trigger a hawkish repricing in interest rate expectations and put some more pressure on prices. Before that, the FOMC meeting minutes are due, with US Jobless Claims figures following on Thursday.
A case for a rebound
The sell-off may owe more to mechanics than fundamentals. FXEmpire's Navnoor Bawa notes that hedge fund net length across WTI and Brent has collapsed 68% from the March peak to 178,800 contracts, with the forced selling behind the slide looking mostly finished. The physical market tells a tighter story, as Cushing stocks touched a 12-year low before a marginal bounce and commercial inventories have drawn for twelve straight weeks. His base case sees a short covering rebound toward $74 to $76 over the next four to eight weeks, a setup that hinges on a possible short squeeze.
Sources: investingLive, FXEmpire (snippet-based)
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