WTI trims a part of its strong intraday gains, still well bid around $84.00/barrel mark

• WTI Crude Oil prices kick off the new week on a strong note, albeit lack follow-through.
• Escalating geopolitical tensions in the Middle East provide a strong lift to the commodity.
• Resurgent US Dollar demand keeps a lid on any further appreciation for the black liquid.

West Texas Intermediary (WTI) Crude Oil prices catches aggressive bids on the first day of a new week and recover a part of last week’s heavy losses to over a one-month low, around the $80.65 region touched on Friday. The black gold, however, trims a part of its strong intraday gains and retreats to the $84.00/barrel mark during the early part of the European session, still up over 2.50% for the day.

The conflict between Israel and Palestine escalated to unforeseen levels after Hamas, a Palestinian militant group, launched an unprecedented attack on Israel and fired a barrage of rockets on Saturday. Furthermore, Palestinian militants infiltrated Israeli territory in multiple locations. This triggered a wave of retaliatory Israeli air strikes on Gaza, raising the risk of a wider Middle East conflict and fueling concerns about supply disruption. This turns out to be a key factor that provides a strong boost to Crude Oil prices, though the intraday bullish momentum falters near the $86.00 mark.

The US Dollar (USD) regains positive traction on Monday and now, seems to have stalled a three-day-old corrective decline from over a 10-month peak touched last week. This turns out to be a key factor acting as a headwind for the US Dollar-denominated commodities, including Oil prices. The US monthly jobs report (NFP) released on Friday reaffirmed market bets for at least one more rate hike by the Federal Reserve (Fed) in 2023. The hawkish outlook remains supportive of elevated US Treasury bond yields, which, along with the global risk-aversion trade, benefits the safe-haven buck.

This, along with concerns that economic headwinds stemming from higher interest rates in the United States (US) will dent fuel demand, further contributes to capping the upside for Crude Oil prices. The downside, however, seems limited in the wake of worries about tightening global crude supply, especially after oil ministers of six Arab nations reiterated to take additional measures at any time to support market stability. Furthermore, Bahrain, Iraq, Kuwait, Oman, Saudi Arabia and the United Arab Emirates reaffirmed their commitment to collective and individual voluntary adjustments to oil production.

The aforementioned mixed fundamental backdrop warrants some caution before placing aggressive directional bets. The intraday pullback from higher levels, however, suggests that the recent sharp retracement slide from the vicinity of the $94.00/barrel mark, or over a one-year high touched in September might still be far from being over.

Technical levels to watch