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  • WTI has dropped back from last Thursday’s above $61.50 highs to current levels around $60.00.
  • Though other risk assets are performing well, WTI might be feeling the weight of international Covid-19 concerns.

Front-month futures contracts for the American benchmark for sweet light crude oil, West Texas Intermediary or WTI, have been on the back foot at the start of the first full week in April, despite the gains being seen in global equities and the downside being seen in the US dollar. WTI currently trades with losses of around $1.20 on the session or just over 2.0%, having slipped back from last Thursday’s highs above the $61.50 mark to trade either side of the $60.00 level.

WTI currently trades ever so slightly to the upside of the big figure and seems to be deriving some support from the 50-day moving average, which currently resides at $59.87. Trading conditions have been thin since the end of the Asia Pacific session amid a lack of European market participants on account of the Easter Monday public holidays across much of the continent. US markets are open and thus volumes should be a little higher over the coming hours, though volumes are unlikely to be as high as on a usual Monday, given the larger than usual number of US market participants expected to be taking advantage of the long weekend and having this Monday off.

Driving the day

Last Friday’s blockbuster seems to have been taken well by equity, bond and FX investors; US equities are charging to fresh record levels with the S&P 500 now above 4050 (up nearly 0.9% on the session), US government bond yields have surged (the 10-year yield is back close to 1.72% up from under 1.68% last Thursday) and FX markets generally point towards risk-on (risk-sensitive AUD, CAD and NZD are all doing well, anyway). As a reminder, the US economy added 916K jobs in the month of March, higher than expectations for 647K jobs to have been added and two-month next revisions came in at positive 156K – the data feeds into the narrative of a US economy that is surging back to health, one that many analysts expect is going to put upwards pressure on risk appetite and US government bond yields.

But crude oil is not sharing the same enthusiasm as these other asset classes. Seemingly, crude oil market participants continue to fret about the threat posed by the ongoing global third wave of Covid-19 infections to near-term crude oil demand; India, one of the world’s largest consumers of crude oil, saw a record number of new Covid-19 infections over the weekend of more than 100K cases on Sunday and states in the country are tightening lockdowns. The Philippines is extending lockdown restrictions in its key National Capital Region for at least one more week. Meanwhile, South Korea saw a fifth consecutive day of above 500 new Covid-19 infections. International Covid-19 concerns look likely to weigh on crude oil prices for some time, with other key markets such as Europe also still in lockdown.

Elsewhere, crude oil market downside may have something to do with last week’s OPEC+ outcome; as a reminder, the cartel agreed to increase output by 350K in May, by 350K in June and 441K in July. Meanwhile, the Saudis announced that they will be gradually reversing their voluntary 1M barrel per day in output cuts by 250K in May (taking their voluntary cut to 750K that month), by 350K in June (taking their voluntary cut to 400K that month) then by the final 400K in July (effectively ending their additional voluntary output cuts). Heading into the meeting, markets had not been expecting the cartel to be bringing this amount of crude oil back online, so this could be weighing on prices.