Oil inter-market: Tuesday’s recovery runs the risk of sudden turnaround in the sentiment

A slight improvement in investor risk-appetite is seen assisting WTI crude oil to move higher for the first time in three trading session and recover losses recorded on Monday to currently trade back above $47.50 level.

Oil has maintained its high degree of positive correlation with the broader US equity index (S&P 500) that is also witnessing a recovery trend on Tuesday. Improvement in global risk sentiment, as depicted by a fall in Volatility Index (VIX), is further supporting the risk-on bounce witnessed across various riskier asset classes. 

However, few intrinsic - like only a tepid bounce in US 10-years treasury yields and stabilizing US Dollar (as measured by the US Dollar index), seem to be diverging from the broader prevailing risk-on sentiment and hence, might restrict any further boost to the commodity.

All eyes now turn to the data points that might turn out to be key fundamental triggers driving crude oil prices in the near-term; i.e. API report on Tuesday and Wednesday's official EIA report on weekly US crude stockpiles.

Given the uncertainty surrounding the economic implication of the unprecedented decision by the UK to end its membership with the European Union, markets runs the risk of sudden turnaround in the sentiment that would seriously dent demand for riskier assets - like equities and commodities, including oil. Adding to this, an unexpected rise in US stockpiles would resurface worries of global supply glut and further diminish the prospects of any additional near-term recovery for the commodity.