Alex Longley and Devika Krishna Kumar Mon., January 24, 2022, 8:53 a.m.
Alex Longley and Devika Krishna KumarMon., January 24, 2022, 8:53 a.m.
(Bloomberg) — Oil in New York tumbled as risk-off sentiment prevailed across financial markets, driven by concerns about monetary tightening and growing political tensions in Ukraine.
U.S. crude futures lost as much as 3.5%, erasing earlier gains. The S&P 500 is set to enter a correction phase amid concerns about the U.S. Federal Reserve’s imminent rate liftoff, while the dollar climbed, making commodities priced in the currency less attractive. Bitcoin tumbled to a six-month low and other digital tokens are seeing even bigger losses.
“We’ve seen a big risk-off in the cryptocurrency space and that has at times shaken the confidence of the oil market this morning,” said Phil Flynn, senior market analyst at Price Futures Group Inc.
Crude recently has been buoyed by robust demand in the face of the omicron variant. Saudi Aramco said Monday that consumption is nearing pre-Covid levels. That is now being compounded by heightened political risk as Russia amasses troops near Ukraine, and the United Arab Emirates comes under attack from Yemen’s Houthi rebels.
“Oil prices are under pressure to start the week dragged down by negative risk sentiment overall in commodity markets,” said Jens Pedersen, a senior analyst at Danske Bank A/S. “The dollar is on the rise ahead of Wednesday’s FOMC meeting, and that seems to be the main culprit.”
Despite the strength in crude, there are some signs that the recent rally could be growing increasingly stretched. Money managers hold more than 12 bullish bets for every bearish one in WTI, the most since November. Crude has also recently been on a run of being technically overbought.