Intermarket analysis: Oil advances on fading hopes for a Fed hike

Oil futures were settled sharply on Monday, with WTI closing at $46.69/bbl on Nymex, up $1.07, or 2.2%as the dollar fell amid diminishing hopes for a Fed rate hike in June.

Oil futures advanced to their highest in 8 months on Monday after an awful US jobs report last Friday, raised doubts about the health of the US economy, dampening expectations of a hike and the US dollar.

Fed Chair Yellen speech on Monday fueled the rally as she said further gradual increases in the federal funds rate will probably be appropriate but refrained from offering an indisputable sign of a June or July move.

The implied probability of a June hike in the Fed fund futures market plummeted to 2% on Monday, from 24% last week. Meanwhile, July hike odds are down to 25% from 50% before the nonfarm payrolls.

The consequent dollar weakness, evidenced with a sharp drop in the US dollar index, supported the advance in oil prices.  

Besides, increases in SP500 and 30-year bond yields, are also consistent with the rise in oil as they are consistent with a risk-on environment.