By Linh Tran, Market Analyst at XS.com
WTI crude oil prices were volatile in yesterday’s session, rising early on before gradually weakening toward the close and finishing slightly in negative territory, thereby ending the previous four-day winning streak. Although the decline was modest, the price action was still meaningful, as it reflected a shift in market sentiment following a relatively rapid rebound.
The four-session rally in WTI did not take place in a supportive macroeconomic environment. The US dollar remained firm (with the DXY rising to near 98.9 before retreating to around 98.7 during the Asian session this morning), US Treasury yields stayed elevated, while US crude inventory data have yet to clearly confirm a sustained tightening in supply. This suggests that the recent advance was not driven by expectations of a surge in demand, but rather by supply-side factors and technical flows.
OPEC+ has continued to maintain a cautious stance on output, while US shale production, although high, has seen slower growth due to cost pressures and tighter financial discipline. This backdrop has helped rule out a clear oversupply scenario, providing a foundation for the rebound in oil prices. At the same time, the sharp sell-off earlier had led to a build-up of short positions, paving the way for short-covering once no new negative news emerged.
In my view, WTI’s inability to sustain gains and its mild pullback toward the end of the session reflects the re-emergence of macro headwinds rather than a genuine trend reversal.
First, the US dollar remains strong, supported by high US yields and cautious policy expectations from the Fed. In such an environment, oil is unlikely to extend gains aggressively without fresh catalysts from either the supply or demand side.
Second, yesterday’s US crude inventory data showed an increase of around 3.4 million barrels, contrary to market expectations for a draw. While this figure was not negative enough to trigger a sharp sell-off, it was sufficient to make the market more cautious, especially after several consecutive gains. As the short-covering impulse faded, the market lacked fresh buying interest to push prices higher, while profit-taking pressure contributed to the pullback.
That said, the latest decline has not been structurally damaging. The magnitude of the correction was relatively modest compared with the preceding rally, suggesting that this was more likely a technical pullback driven by short-term profit-taking rather than a clear signal of trend reversal.
The end of the winning streak also highlights a key reality: WTI is currently trading in a data-sensitive environment, with the market becoming more cautious in the absence of clearer evidence of sustained supply-demand tightening.
In the near term, WTI’s direction will depend heavily on upcoming inventory reports. If inventories return to a declining trend, particularly while geopolitical risks remain present, oil prices could stabilise and resume their recovery. Conversely, if inventories continue to rise for several consecutive weeks while the US dollar stays strong, downside adjustment pressure is likely to increase.
In my view, the most plausible scenario at this stage is for WTI to trade in a consolidation range around current price levels, with a slight downside bias as the market searches for a new equilibrium, rather than immediately forming a strong uptrend. The recent mild pullback, which ended WTI’s four-day winning streak, should not be interpreted as a reversal signal, but rather as a necessary correction following the prior sequence of consecutive gains. Under current conditions, oil prices remain supported as the market has yet to find a sufficiently strong reason to sell aggressively; however, further upside will require clearer confirmation from inventory data and the outlook for demand in the period ahead.