Crude oil prices have continued to decline since last Friday, after a series of gains that led to the highest levels in about twenty days. West Texas Intermediate (WTI) oil futures fell by 0.6% to $87.55 per barrel at approximately 12:00 noon GMT.
Brent crude oil futures also fell by approximately the same percentage, reaching the level of $91.75 per barrel.
These declines during the past two sessions come with increasing talk about the possibility of containing the ongoing conflict in the Middle East and the efforts of international community to ensure that it does not go outside its usual borders or enter parties from inside or outside the region to fuel the conflict and get it out of control, which may threaten oil supplies.
On the other hand, we continue to see more bullish signals and expectations supporting oil’s rise. The National Bank of Canada believes that the United States is no longer able to make further withdrawals from strategic reserves in order to reduce oil prices, which may keep inventory levels below the historical average.
Commerzbank also believes that oil prices may be supported by concerns about oil supplies remaining at high levels, with the conflict in the Middle East continuing and fears of its expansion. Almost the same thing is believed by ANZ Bank, as the bank sees that the expansion of the conflict may disrupt the supply of global markets with about 20 million barrels of crude oil per day.
On the economic side, we witnessed a noticeable rise in ten-year US Treasury bond yields, compared to a decline in two-year yields. These opposing dynamics have contributed to reducing the gap between the yields of these bonds to the lowest levels since mid-July of last year, at 0.129%.
I believe that this mixed performance in bond yields and the rapid trend of the yield curve towards the positive region may reflect the underlying positive sentiment in the markets towards the growth of the US economy, which may continue to provide more support for oil.
The rise in ten-year bond yields reflects the markets’ optimism about the US economy’s ability to actually avoid recession despite the record high interest rates, and this is what we have begun to see clearly with the third quarter earnings results season, in which companies continued to record better results than expected for most of them.
In addition, the decline in short-term bond yields reflects market expectations that the Fed will end its cycle of raising interest rates, despite the Fed’s repeated talk about the possibility of raising interest rates to curb faster-than-average economic growth that contributes to fueling inflation.
Moreover, the eurozone countries continue to show more positive economic numbers, which indicate the possibility of the countries of the region to restore growth and stop the contraction, whether at the level of manufacturing or services activities.
