Oil prices have plummeted from their high levels, as fundamental and geopolitical factors interplay.

On Wednesday (May 7), during the Asian session, the international crude oil market experienced significant fluctuations. Oil prices initially surged but then experienced a “diving” trend in the night session, with an intraday drop of nearly 4%. With multiple macro and geopolitical factors in play, market sentiment saw short-term fluctuations, leading to sharp swings in oil prices before entering a consolidation phase.

Oversold Bounce Releases Momentum, Oil Prices Retreat After Short-Term Surge

After a period of continuous pullback, oil prices saw a recovery this week due to oversold conditions, geopolitical tensions escalating, and favorable macroeconomic policies, leading to a quick rebound as investors' risk appetite warmed up. However, once the technical rebound energy was released, bullish momentum weakened, causing oil prices to undergo a sharp correction back into the oscillation range.

In the Wednesday night session, the main crude oil contract plummeted by over $8 at one point, eventually closing down nearly 1.4%. The latest EIA weekly crude oil inventory data showed a decrease of 2.032 million barrels, more than expected. Although the data initially boosted oil prices, the increase was unsustainable, and prices soon returned to a downward trajectory.

Frequent US-China Policies and Geopolitical News Cause Market Sentiment to Fluctuate

In China, the central bank announced multiple easing monetary policies, including a reserve requirement ratio cut, to stabilize financial markets. This news briefly boosted risk assets, with industrial products and oil climbing in tandem. However, the gains were later erased as there was no significant improvement in the economic fundamentals, revealing continued fragile confidence in economic recovery.

On the geopolitical front, there were signs of easing. US President Trump announced a ceasefire agreement with the Houthi forces, welcomed by Iran and Saudi Arabia. Additionally, US Vice President Vance noted that nuclear negotiations with Iran were progressing smoothly, with an agreement likely to reintegrate Iran into the global economy. This was interpreted as a temporary easing of Middle Eastern tensions, further diminishing the safe-haven demand for oil.

Fed's Hawkish Stance and Tariff Uncertainty Continue to Pressurize Oil Prices

In the recent FOMC rate decision, the Federal Reserve kept rates unchanged but highlighted stagflation risks and tariff uncertainty. Fed Chair Powell warned that the US economy faces dual pressures of inflation and employment, while Trump publicly stated his reluctance to reduce tariffs on China in exchange for trade negotiation progress. The uncertainty in policy continues to pose a significant long-term impact on the oil market.

Oil Prices Enter Consolidation Phase, with Technical Corrections Leading the Pace

Overall, the crude oil market has completed a rapid rebound and may enter a phase of technical correction and range trading in the short term. The fundamentals do not show a clear direction of breakout, and policy and geopolitical variables might continue to impact market expectations frequently.

Analysts believe that the upcoming oil price trend might predominantly be a high-level oscillation with repeated swings. Investors should pay attention to inventory data, the pace of macroeconomic policy releases, and changes in the Middle East situation to adjust their positions sensibly and seize volatility opportunities.

The market carries risks, and investment should be cautious. This article does not constitute personal investment advice and has not taken into account individual users' specific investment goals, financial situations, or needs. Users should consider whether any opinions, viewpoints, or conclusions in this article are suitable for their particular circumstances. Investing based on this is at one's own responsibility.

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