U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading higher for a third session on Thursday as the market continues to recover from a steep sell-off earlier in the week.
As impressive as it is, the market has only recovered a little more than 50% of its break from the July 6 top to this Monday’s low. In other words, there’s still more work to do before we can say the market has fully recovered from the effects of OPEC+’s decision to increase output and the lingering concerns over the possible demand destruction from the new coronavirus outbreak.
The combination of increased supply and a possible slowdown in demand may be enough to prevent the market from taking out the July top. Meanwhile, the markets may have found their value areas earlier in the week, which suggests we could be headed toward a rangebound trade over the near-term.
The next major move may not be decided until we see the reaction to the increased OPEC+ supply in August, or the extent of the damage from the surge in the virus.
Everyone is Watching Domestic and Global Supply
Members of OPEC+ agreed this week on a deal to boost oil supply by 400,000 barrels per day from August to December to cool prices and meet growing demand.
Crude inventories in the United States, the world’s top oil consumer, rose unexpectedly by 2.1 million barrels last week to 439.7 million barrels, up for the first time since May, U.S. Energy Information Administration data showed.
Technical factors and chart formations are likely to influence the price action on Thursday as investors continue to assess the impact of increased supply and possible demand destruction.
September WTI crude oil is currently testing a key retracement area at $70.54 to $71.85. Trader reaction to this zone is likely to determine the near-term direction. The key area to watch for September Brent crude oil is $72.62 to $73.85.