Crude Oil Prices at Risk on Italian Election, Trade Woes, US Data

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Crude oil prices fell alongside stocks as macro-level forces overshadowed other considerations last week. First, hawkish rhetoric from newly minted Federal Reserve Chair Jerome Powell stoked fears of a more aggressive rate hike path than had been accounted for. Then, US President Donald Trump announced a tariff hike on imported steel and aluminum, sending markets reeling.

A busy week packed with critical event risk is ahead. The annual five-day CERAWeek conference in Houston will set the backdrop, with comments from industry bigwigs likely to keep traders watching the news wires. The IEA will unveil its new five-year oil market outlook report at the gathering. API and EIA inventory flow data is also due. The latter will also publish an updated short-term market outlook.

Turning to the macro front, the outcome of Italy’s general election is first in focus. A strong showing for the eurosceptic Five-Star Movement (M5S) may sour the markets’ mood. February’s US jobs report is also of note. If wage inflation continues to look elevated, worries about rapid Fed tightening may unnerve investors. Trade war jitters may also keep them on edge as the EU and China ponder a response to the US tariff hike.

On balance, the path of least resistance seems to favor the downside. If Italy’s election passes without handing M5S enough votes for a decisive voice in subsequent coalition negotiations and protectionist pressures ease, the upbeat implications for global growth ought to keep the Fed on the offensive. That might be worrying enough to make for a risk-off mood. Needless to say, the alternative bodes worse.

— Written by Ilya Spivak, Currency Strategist for DailyFX.com

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