Oil Market Dynamics

The recent rally in oil prices has shown signs of cooling as investors search for a new catalyst to support further buying. Despite some physical crude cargoes commanding hefty premiums and prompt time-spreads reaching their widest point in a year, indicating a supply scarcity, macroeconomic headwinds are capping gains.

The dollar has surged to an eight-month high, diminishing the appeal of commodities priced in the currency, and rate-hike expectations are fuelling risk-off sentiment across markets. Nevertheless, oil has added about 25% since June and is on track for its biggest quarterly gain since March 2022, driven by supply curbs from OPEC+ leaders Saudi Arabia and Russia.

Investor Sentiment and Market Expectations

The rally has led hedge funds to increase their bullish bets on WTI to the highest level since February 2022, reigniting discussions about $100-a-barrel crude. Traders are now looking to China for signs of surging demand as the world's top oil importer prepares for the Golden Week holiday starting Friday. More than 21 million people are expected to fly during the eight-day period, following record air-passenger traffic in July and August that has boosted oil consumption.