• Oil prices have dropped to near a two-week low at $84.75 amid multiple headwinds.
  • Build-up of oil inventories, recovery in the DXY, and inflation risks to the US economy add volatility to oil prices.
  • IEA head slammed OPEC+ for oil supply cuts as it may worsen the developing nations’ situation.

West Texas Intermediate (WTI), futures on NYMEX, have plunged more than 3% to near two-week low at around $84.75 amid a build-up of oil inventories last week, and rising odds for the higher peak of Federal Reserve (Fed)’s terminal rate. The oil prices nosedived after surrendering the psychological support of $90.00 as oil demand is facing multiple headwinds.

On Wednesday, US Energy Information Administration (EIA) reported a build-up of oil inventories by 3.925 million barrels for the week ending November 4. The addition of oil stockpiles weighed significant pressure on oil prices.

Apart from that, raising fears of an economic downturn in the US economy is also dampening the market mood. Richmond Federal Reserve (Fed) President Thomas Barkin on Wednesday cited that Fed’s fight against inflation may lead to a downturn in the US economy but that is a risk that the Fed will have to take, reported Reuters.

A sheer recovery in the US dollar index (DXY) also impacted the oil prices. The DXY recovered sharply as odds for higher Fed’s peak rate accelerated. Economists at ABN AMRO predicted that the Fed will shift its peak higher than the projected terminal rate to 5% (with a 25 bps rate hike in the first two monetary policies in CY2023 after a 50 bps rate hike in December). Going forward, a higher release of US inflation will strengthen the DXY and may escalate selling pressure for oil.

For OPEC+’s production cut decision, head of the International Energy Agency (IEA) Fatih Birol slammed the oil cartel’s decision to cut oil production as it might worsen the outlook for developing countries that are sliding towards recession, reported Bloomberg. He further added that the move is fueling inflation, especially in developing countries, and may require a “rethink,”

In China, a postponement in the reopening of the economy is also adding to the sell-side filters for the oil prices. Expectations of weak oil demand in the coming months due to a continuation of the no-tolerance Covid-19 approach are supporting oil bears.

This article was originally published by Fxstreet.com.Read the original article here.

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