Oil intermarket: DXY and oil highly correlated, can WTI thus bounce back?

Despite the DXY back below the 98 handle today, oil prices dropped sharply again today and continued the decline from supply since the 12th April.

US Dollar approaches multi-month lows below 99

However, today's decline was $2.5c so far from a high of 45.60 to a low of 47.75 in WTI and more than a 5% move. The reason for the decline stays with expectations for a recovery in Libyan crude production as well as rising U.S. output setting prices up for their lowest finish since November. 

This move comes after an initial bounce today when three OPEC delegates said the supply quotas are likely to be extended into the second half of the year although that did not necessarily mean that there would be an increase the size of the cuts. Casting minds back as far as yesterday, we had the U.S. government data that showed weekly domestic crude production had risen while inventories fell less than expected. This already was deepening the scepticism around production cuts from the Organization of the Petroleum Exporting Countries.

However, in other news, the BBC had reported yesterday that two of the largest factions in Libya have made progress in reaching a deal to resolve the nation’s political and economic crises that had been causing intermittent shutdowns of Libya’s biggest oil field. With progress in Libya, it is said that the troubled nation could otherwise recover back to producing  1.5 million bbls per day in a matter of just a few months while excluded from OPEC quotas. We will have to wait to when OPEC is set to decide on the extension into the second half of the year when the organisation actually meets on May 25 in Vienna. 

In respect to levels, the price broke below a key rising supporting level when it broke and closed below the 48 handle. 44.70/80 is the next meaningful support line guarding 44.40 28th Nov low and 43.20. To the upside, the 200 EMA is located at 49.14 and stands as a key target for a more neutral price in WTI. In respect to the DXY, the last time it was this low, WTI was supported at 48.80 for a number of days and comes as key upside target in the near term for a potential break and test of the aforementioned daily 200 EMA.