After four months of low volatility and relatively stable melt-up in oil prices, action over the past 24-48 hours has been a curious one amid EIA inventory stats that, on the face of it, were even more supportive than the earlier APIs – albeit with the caveat that hurricane Laura has had a significant impact.

But the recent US dollar weakness that has supported the oil price reversal yesterday, with a predictably negative effect on the commodity that offset a large 9.4mb drop in US crude inventories.

In addition to the seasonality effect, including the refinery maintenance period and end of the driving season that will both be weighing on oil demand in September, perhaps spooking the markets, even more, were the reports that Iraq was getting wobbly on its commitments under the OPEC+ agreement.

The market, rightly, is intensely focused on the continuing effectiveness of this deal.

More than just September seasonality in play

Early this week, I anticipated a short-term peak for the mega reflation trade would mean the NASDAQ, Oil, Gold, EURUSD and the dollar – in general, will all start a meaningful correction.

I am not patting my self on the back by no means as I hate to see people lose money, nor do I have any magical looking glass. Still, the signals were apparent to some cross-asset traders, especially those that included commodity currencies in their portfolio. Here are some indicators:

• Fed does not sound as dovish as I thought they would.

• Volume rising along with stocks can be a sign of danger.

• Breadth in the equity market is bordering on worrying.

• Real interest rates are not making new lows.

• Gold not making new highs. It is making lower highs.

As expected, there remains sturdy demand supported by an OPEC+ price plank around $40-41, and even if that level does give out, it should only be a small breach.

The rebounding US dollar ahead of the European Central Bank (ECB) rate decision poses the most massive threat to the short-term view.

While the USD move and Iraq news may have led to some profit-taking, underlying supply/demand trends continue to suggest a tightening market and a move towards the WTI $45 per barrel.

In sum, oil prices, similar to other commodities and stock market moves, appeared to be in a price consolidation phase after a positive melt-up over the past two months.

And for oil markets, in particular, traders thought there was reasonable cause to de-risk for the end of the US driving season.

Oil markets analysis and insights from Stephen Innes, Chief Global Market Strategist at AxiCorp