Oil inter-market: Sell-off to intensify amid rising VIX

Oil prices staged a reversal on Friday, moving away from fresh weekly highs reached a day before, following a surprise drawdown in the US crude stockpiles. The oil bulls completely ignored the USD rally yesterday and surged almost 4% as upbeat inventory data underpinned sentiment.

The US EIA report showed that crude oil inventories dropped by 14.51 million barrels in the week ended Sept 2, against an expected gain of 225,000 barrels.

The renewed weakness in oil prices seen so far this session is largely backed by prevalent risk-averse market conditions, triggered by latest geo-political tensions stoked by North Korean nuclear missile testing news, which almost killed the demand for risky assets such as oil, equities etc. The CBOE volatility index (VIX), which measures risk sentiment, is seen extending +3%, suggesting risk-off moods persist at full steam.

Moreover, oil extends sell-off also as the US dollar stalls its corrective slide and peeks into the green, with the DXY now back above 95 handle from 94.81 lows, despite a rebound in the US treasury yields. Further the US equity futures are seen trending lower, backing the case for further downside in the commodity.

Focus now shifts towards the US rigs count data, which may provide fresh insight on the US crude supply scenario and hence, shape up next moves in oil.