WTI fades US CPI-led recovery around mid $85.00s amid mixed demand-supply concerns

• WTI Crude Oil fails to defend the rebound from the lowest levels in 12 days.
• Covid woes in China, easy headlines over Russia-Ukraine war challenge energy buyers.
• Softer US inflation, fears surrounding EU’s “correction mechanism” probe sellers.
• Risk catalysts will be more important for near-term directions.

WTI buyers relinquish control, following the black gold’s bounce off a two-week low, as traders seek fresh clues to defend the US inflation-led recovery during early Friday. That said, the energy benchmark retreats to $85.50 by the press time.

In addition to a lack of major data/events, as well as the US bank holiday, mixed signals surrounding the demand-supply matrix also challenge the WTI buyers to extend the post-US Consumer Price Index (CPI) run-up.

Among them, concerns surrounding China’s coronavirus conditions act as a major drawback. The dragon nation reported a slight decline in the daily covid figures the previous day but the outcome still remained near the highest levels in six months. Also, multiple lockdowns and fears of worsening virus conditions, as well as the zero-covid policy, highlight fears of lesser demand from the world’s biggest commodity user.

Elsewhere, Russia’s retreat from Kherson and a lack of major negatives over the previously dominant geopolitical fears seem to also weigh on the black gold prices. It should be noted that the increase in weekly oil inventories and looming fears of global recession also exert downside pressure on the black gold.

That said, a surprise eight-month low in US CPI triggered the WTI’s run-up the previous day as the US Dollar Index (DXY) dropped towards the lowest levels in two months after the inflation data pushed back the hawkish Fed bets.

Further, the European Union’s (EU) readiness to curb the gas price, despite witnessing mixed responses for its method citing a firm price cap, suggests further action from Russia and may help the oil prices. The European Commission will propose a gas price "correction mechanism" to the 27 EU states on Friday, a measure aimed at easing price spikes but not the firm cap sought by many countries, according to sources and documents seen by Reuters.

It’s worth noting that the risk-on mood keeps the oil buyers hopeful but the US bank holiday and a light calendar test the traders of late.

Technical analysis

WTI buyers need to provide a daily closing beyond the support-turned-resistance line from late September, around $87.15 by the press time, to regain the market’s confidence.