Rebound in Bond Yields, Oil Eases Adding Bearish Pressure to USD

The rebound in oil met some resistance on Tuesday late in the session as markets apparently realized that it’s a bit premature to completely discount potential negative impact from the new Covid variant. By the yesterday close, prices erased about 40% of intraday gain, so bullish bet on continuing momentum isn’t so appealing today. Brent added 3.4% on Tuesday and the price tried to climb above psychologically important level of $75/bbl, however failed to hold its ground on Wednesday. Demand for Brent futures increased to an even less extent, which is evident from the narrowing time spreads.
The latest data on Chinese imports shows that China's oil demand increased 15% on a monthly basis to 10.21 million barrels per day. However, the annual dynamics of demand continues to remain negative and amounts to -8%. Exports of oil refined products increased by 6% on a monthly basis, but in annual terms the change is negative and amounts to -15%. Domestic shortages and lower export quotas put pressure on China's oil product exports.
The API data released on Tuesday showed that crude oil inventories fell by 3.1 million barrels in the reporting week. However, inventories at Cushing are up 2.4 million barrels. Also, stocks of gasoline rose by 3.7 million barrels and distillates by 1.2 million barrels. The growth in refinery products inventories neutralized the positive effect of lower crude oil stocks on prices, so the market took the report negatively rather than positively.
It is also worth noting the EIA's short-term oil production forecast published yesterday. The agency's forecasts for US oil production in 2021 and 2022 remained unchanged from previous ones, which is encouraging, as competition from shale oil with OPEC was one of the main factors holding back oil growth in the pre-covid time.
Technically, oil is struggling to gain foothold above important psychological level of the 200-SMA. With the last fall, the curve flattened, and it is critically important for prices to remain above the level for at least a few days, so that a new leg of the rally can be expected:

Along with the weakening of the upward movement in oil, fears also intensified on Wednesday that the Fed's intention to accelerate tapering of bond purchases in order to tame inflation will choke growth. The 10-year Treasury bond yield apparently halted advance, along with this, the US currency also came under slight pressure. The dollar index is trading slightly in the red with near-term risk skewed slightly to the downside.
US November inflation report is due on Friday and in case of upside surprise in the rise of consumer prices, markets may double down on the bet that the Fed will be more aggressive in its tapering plans. In addition, the data on inflation in China will be released tomorrow and MoM decline in inflation pressures, especially in PPI may instill hope that inflation is retreating and central banks will not rush to take restrictive measures, which may ultimately offer some support to the US currency.
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