Crude oil halts slide as risk assets get amnesty on Biden’s assessment

Crude oil benefitted from a rosier mood after US President Joe Biden said that a recession isn’t inevitable. The WTI futures contract is near US$ 111.50 bbl, while the Brent contract is around US$ 115.50 bbl.

Other commodity markets that have been roiled to start the week have fared a bit better today.

Risk assets in general got a lift with APAC equities all in the green. All of Japan’s main indices were over 2% higher. The US return from a long weekend today and futures markets are pointing toward a positive start to their week.

US Treasury yields are inching up again after St. Louis Fed President James Bullard said that inflation expectations could become unmoored unless Fed takes credible action

The RBA had a busy day with the release of a review into their yield curve control (YCC) program that fell apart last November, Governor Philip Lowe gave a speech and the June meeting minutes were released.

RBA Governor Lowe said that at the June meeting a decision between a 25 or 50 basis point hike was discussed. He added that he thought that a similar discussion will take place at the July meeting, effectively ruling out the possibility of a jumbo 65 basis point rate rise.

With the current cash rate at 0.85%, this implies that the bank is not worried about getting the cash rate back to multiples of 0.25%

The benchmark three-year Australian government bond yield remains near 3.70% after starting the year at 1.00%.

The Australian and Canadian dollars are slightly stronger through the Asian session, while the US dollar and Japanese yen are a touch softer.

Looking ahead, the focus will be on central bank speakers with the BoE, ECB and the Fed all being represented.

Crude oil (WTI) structural factors

WTI crude oil continues to exhibit relatively elevated backwardation. Backwardation being when the futures contract that is next to expire trades at a higher price than the contract that will expire after it.

This may indicate that the market is paying a premium to have immediate delivery rather than having to wait, hinting toward possible desperation to satisfy demand.

At the same time, volatility is relatively subdued, alluding to market comfort with the current level of crude oil.

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