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The news flow from Lebanon is certainly being monitored closely and initially offered crude some tailwinds, although at this juncture oil traders remain highly sceptical on the possibility of a supply shock in the region.
The fact that we saw no concerns expressed in the volatility markets, with JPY selling, and equity untroubled, suggests the moves higher in crude through US trade was a pure positioning exercise, largely driven by a market reducing a huge net short futures position, and as the Brent price pushed higher, those who had been betting on the bear trend continuing lower have cut back. There has also been no follow-through buying in Asia today and we see both brent and WTI crude marginally lower.
We look ahead to what could be a very lively session, with an eye on the weekly DoE inventory report, although this will be overshadowed by the Fed meeting, where simplistically crude will take its directional steer from the tone of the statement and Powell’s press conference and the subsequent reaction in risk assets.
A more concerned Fed, regardless if its backed by a 50bp cut, could feed into the perception of future demand and promote renewed selling in crude.
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