Oil prices hold steady as markets assess Middle East risks ahead of the Fed

Crude oil, WTI, Brent, US dollar, gold, FOMC – discussion points

• Petroleum as the conflict in the Middle East develops, there may be sideways price action
• Haven assets remain desirable amid noise and volatility, such as: gold increases
• Markets appear to be ready for range trading in many markets

Crude oil is in range at the beginning of the week, but has fallen slightly during the Asian session. The market remains cautious and concerned about potential disruptions to global oil supplies as a result of fighting in the Middle East.

Israel began moving ground troops into the Gaza Strip over the weekend and there are hopes the conflict will not spread to the entire region. The United States and Iran have expressed concerns that the theater of war may not be contained.

At the time of going to press, the WTI futures price had fallen below $85 barrels, while the Brent futures price had fallen below $90 barrels.

Assets seen as havens had a mixed start to the week, with the price of gold falling slightly after another significant gain on Friday, falling to $2,000 an ounce.

Currency markets started the week calmly and this week all eyes will be on the Bank of Japan (BoJ) as it considers changing its monetary policy.

Most experts expect a change in yield curve control (YCC), although there has been some speculation that a negative interest rate policy (NIRP) may be addressed.

Meanwhile, the decision of the Federal Open Market Committee (FOMC) will be known on Wednesday and the interest rate market does not expect any change in the target Fed funds rate. The main focus will be on the post-conclave press conference.

Shares in the Asia-Pacific region fell broadly after Wall Street ended last week in the red, while Treasury yields rose slightly after Friday’s calm.

This week we will focus on central bank meetings.

The full economic calendar can be viewed here.

WTI CRUDE OIL TECHNICAL PICTURE

The structural backdrop for oil may not be as favorable as initially thought based on the prospect of greater global supplies as a result of the war in the Middle East.

Crack spreads are lower, as is backwardation, as volatility increases.

Backwarding occurs when the futures contract closest to settlement is more expensive than the contract settled after the first one. This highlights the market’s willingness to pay more for immediate delivery rather than waiting.

The RBOB crack spread is a measure of gasoline prices relative to crude oil prices and reflects the refinery’s profit margin.

RBOB stands for reformulated blendstock for blending oxidants. This is a marketable type of gasoline. If refinery profitability increases, it may result in greater demand for the raw material.

WTI CHART

Chart created in TradingView

— Written by Daniel McCarthy, Strategist at DailyFX.com

Please contact Daniel via @DanMcCarthyFX on Twitter