WTI Erases Early Gains, Falls Back to Test 200DMA in $94s While Copper Prices Rise

Key Points

• After finding support from European energy crisis concerns early in the session, WTI has slipped back into the red.
• The US crude oil benchmark is back to probing its 200DMA in the $94.0s.
• Copper, meanwhile, has been resilient to a risk-off tone to global macro trade amid optimism about Chinese demand.

WTI Reverses Early Gains Amid Bleak Demand Outlook

Front-month futures of the American benchmark for sweet light crude oil, West Texas Intermediary or WTI, reversed an intra-day rally on Tuesday and were last trading lower by about $1.50 near the 200-Day Moving Average. According to market commentators, an agreement amongst EU energy ministers to reduce their gas usage between now and next March initially gave oil prices a boost on Tuesday, with traders betting that EU nations will be forced into turning to alternative fossil fuel oil sources, that could boost demand for US oil.

While this idea continues to offer some support to Europe’s main crude oil benchmark Brent, US oil prices soon came under pressure and reversed earlier session gains as fears about the US and global economy took over. Data on Tuesday revealed that US Consumer Confidence has fallen for a third successive month in July and comes in wake of recent business survey and housing data pointing to weakness elsewhere in the US economy.

WTI traders are focused on the upcoming release of private API crude oil inventory data at 2030GMT that will give a timely update as to the health of US gasoline demand. Data last week showed that high gas prices may be deterring drivers, right in the middle of what should be the peak of the US driving season. This data weighed heavily on US crude prices last week and traders should be on the lookout for a possible repeat this week.

As US oil markets focus more and more on demand weakness while European oil markets remain focused on geopolitics and the energy crisis, the discount of WTI to Brent crude has risen to its highest since June 2019 at around $10. Elsewhere, US natural gas prices nearly hit their highest levels of the year on Tuesday, rising momentarily above $9.50 but just missing out on their early June highs near $9.60. Prices have since given back most of their earlier intra-day gains and were last changing hands in the $8.90 area.

Copper Remains Resilient to Risk-off Flows

Risk-sensitive copper prices mostly managed to shrug off risk-off global macro flows on Tuesday, and were last around 0.5% higher in the $3.40 area, though have slipped back from earlier highs in the upper $3.40s after finding resistance at their 21DMA. Optimism about efforts by Chinese authorities to boost credit for infrastructure projects is being touted as supporting prices given the possible boost to copper demand this may deliver. China is the world’s largest user of the red metal.

Data on Tuesday showed that China issued double its usual amount of special bonds for infrastructure in May, while Chinese authorities on Monday said they will launch a $44 billion real estate fund to help the country’s struggling property sector. But analysts remain unconvinced that copper can muster any meaningful rally anytime soon, given the worsening economic outlook outside of China and central banks that are intent on continuing their tightening efforts despite slowing growth.