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By: Editorial Team, StoneX Media
Crude oil is trading with a firm underlying bid, even after a recent selloff, as falling U.S. crude inventories and Middle East supply risk keep a premium in the market. Crude oil volatility now hinges on two forces pulling in different directions, a tightening physical backdrop and an approaching U.S. non-farm payrolls report that could reset positioning. The market is effectively caught between a geopolitical supply story and a macro data event, and the interaction between the two will shape the next move. That tension is why the coming sessions matter for anyone tracking energy risk.
Razan Hilal, FOREX.com Market Analyst and Chartered Market Technician, covers forex, commodities, and equity indices with a focus on technical and intermarket analysis. Her work across global macro markets, including crude oil and the cross-asset effects of geopolitical supply risk, connects directly to how oil is positioned ahead of the U.S. non-farm payrolls report.
Crude oil is carrying a geopolitical risk premium as Middle East supply disruption and uncertainty around the Strait of Hormuz tighten the physical market. "this combination between tightening supply conditions and persistent geopolitical risks supports oil risk premium and keeps inflation concerns elevated", Hilal explains, pointing to how the premium sits on top of an already tightening balance. As a result, crude oil volatility becomes more sensitive to any headline out of the region, since a supply-driven premium can unwind or extend quickly. For traders, that means the geopolitical layer is now a core input into how crude oil is priced rather than a background factor.
The upcoming U.S. non-farm payrolls report is the next macro catalyst likely to drive crude oil volatility, layering a data-driven move on top of the supply story. A stronger or weaker labor print can shift expectations for demand and monetary policy, feeding directly into how crude oil trades in the sessions that follow. The report also lands against a backdrop where any regional escalation could amplify the reaction. According to Hilal, the payrolls response will move "in line with any development surrounding the Middle East conflict".
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--- Written by Gus Farrow, Senior Manager, StoneX Media
--- Expert: Razan Hilal, FOREX.com Market Analyst
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Crude oil is caught between a Middle East supply risk premium and an approaching U.S. non-farm payrolls report. The interaction between geopolitics and macro data is setting up the next test for crude oil volatility.
July 31 – Stocks are looking to add to yesterday’s rebound, with futures pointing to positive opens across the board. The tech-heavy Nasdaq is looking to lead the way higher, with Amazon’s impressive earnings report after yesterday’s close possibly calming some of the nerves regarding the broader tech sector after the recent selloff. While topline revenue saw a solid beat, the biggest standout was the impressive performance of AWS, with sales seeing its fastest growth in four-and-a-half years, suggesting the company’s heavy AI infrastructure spending is translating into serious demand. As the AI buildout accelerates, the market is likely to draw an increasingly sharp distinction between companies converting these massive investments into earnings growth and those simply accumulating costs. The VIX is reflecting a cooling of fears on Wall Street as well, looking at a quiet start to the day as it sits near the 17.3 mark. The dollar is rebounding after tanking to a six-week low yesterday, trading at 100.34 this morning. Treasuries remain a concern for the market, though they are looking to reverse some of the sharp inversions seen this week, as 30-year yields remain near their 19-year highs, trading at 5.226% at the time of writing, while 10-year yields are flirting with an 18-month high as they trade at 4.70%, and 2-year yields have pushed to trade just below 4.29%. Crude oil is modestly higher to start the day, with nearby WTI up 1.6% to trade near $85.30 and nearby Brent up 1.7% to trade near $88.40. The ags are looking at a mixed open, with the wheat complex taking back some of yesterday's gains despite fresh escalations between Russia and Ukraine.
Fresh fruit and vegetable markets are often the first agricultural sectors to feel rising energy costs because transportation plays a much larger role in final pricing. As oil prices remain elevated, refrigerated logistics and distribution costs could become a more immediate driver of food inflation than grain prices.
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