WTI plunges as traders brace for higher US interest rates

• WTI drops more than 4% or more than $3.00 pb on Tuesday.
• Powell opened the door for faster rate hikes and higher terminal rates.
• China’s reopening put a lid on WTI’s fall, at around the 20-day EMA at $77.21.

Western Texas Intermediate (WTI) collapsed 4% on Tuesday, following hawkish remarks by the US Federal Reserve (Fed) Chair Jerome Powell at an appearance in the US Senate. The US Dollar (USD) rose, and US Treasury bond yields, mainly 2s, reached the 5% threshold. At the time of typing, WTI is exchanging hands at $77.17 PB.

WTI dropped on Fed Powell’s remarks, though it was capped by future demand

Jerome Powell, the Federal Reserve Chair, said the Fed needs to increase rates above previous forecasts. Powell added that the US central bank would be ready to hike rates in large increments if upcoming data was solid.

The US Dollar Index (DXY), a gauge for the buck’s value vs. six currencies, advances more than 1%, at 105.597, a headwind for the US Dollar denominated commodity.

Oil prices tumbled earlier on China’s data, with Exports shrinking 6.8% YoY, lower than the previous reading. Imports were 10.2% weaker, worst than December figures at 7.5%, less than a year earlier.

However, WTI’s fall was capped by speculations of an oil shortage. According to the US Energy Information Administration (EIA), US crude production and demand will increase in 2023 as Chinese travel drives consumption.

WIT Technical levels