WTI crude oil is trading $6.50 higher to $100.90 per barrel in a quick shift in mood from yesterday.
The break below the March low yesterday wasn't confirmed into the close and now oil is at a one-week high. Strength this week would cement the idea of consolidation in the $93-117 range rather than a deeper pullback but there are several factors at play.
China lockdowns
Cases today were roughly flat and China introduced some measures to ease lockdowns in neighbourhoods in Shanghai where there hadn't been cases in 14 days. Still, they're clocking +20K cases per day and it will be very, very difficult to contain nationally. News of more cases and lockdowns are a material risk to oil with upwards 1 million barrels per day of demand already sapped from the market.
Ukraine war
Europe continues to dabble with the idea of cutting off Russian crude. There were reports (unconfirmed) of chemical attacks in Mariupol yesterday and that's the kind of thing that could be a tipping point. Putin today said talks were at a 'dead end', something that suggests a new offensive is imminent.
Inflation
Oil is an inflation hedge but inflation isn't necessarily good for oil. The larger risk now is intense central bank rate hikes that crush global growth. Ultimately, oil is a bet on global growth and negative shocks hurt driving, flying and industrial demand. If inflation begins to flatten, it means central banks don't need to get as aggressive. The message in today's price action is that outcome would be best for crude.
As for the read-through to FX, the Canadian dollar is at 1.2611 and the Bank of Canada is likely to hike 50 basis points tomorrow. There's value there if oil can consolidate in this range and other commodities stay strong.
