Crude's message

Crude oil was weaker in early trade this morning, giving back a proportion of yesterday’s gains. Oil prices have recovered somewhat over the past week. Last Tuesday front-month WTI fell below $65 to hit its lowest level since May 2023. Since then prices have bounced, with WTI adding around 7.5% from last week’s low to yesterday’s high. But this must be put into perspective as crude lost 23% between early July and last week’s low. Crude was exceptionally oversold ahead of this rally, and even with the latest pick-up, it remains oversold. But even with the bullish trigger of supply disruptions due to Hurricane Francine, and the prospect of lower interest rates from the US Federal Reserve, crude hasn’t bounced sharply enough to set off a serious bout of short-covering which should have driven prices much higher. Instead, gains have been relatively slow and measured, which could suggest that this is simply a run-of-the-mill correction ahead of another lurch lower. If so, then oil is sending the wider market an important message: it’s saying that we should expect a global economic slowdown. If that’s the case, then it would be a strong argument in favour of a 50 basis point cut after tomorrow’s FOMC meeting.