Oil Video 30.07.20.
Coronavirus In Spotlight Again
For several months, oil managed to ignore the steady increase in the number of new coronavirus cases in the world and stayed near the $40 level.
Today, WTI oil has moved below the $40 mark in what could be the most serious attempt to gain more downside momentum.
The virus situation continues to get worse, and some countries are reimposing virus containment measures to fight against the second wave of the disease.
Notably, UK has stated that it was worried about the second wave of coronavirus in Europe and added that it may impose quarantine measures on more countries.
At this point, Spain is the only EU country in the UK quarantine list, and UK travellers to Spain have to self-isolate for 14 days after arrival.
Such measures are a death blow to the fragile rebound in tourism – and to the related rebound in air travel.
Another source of worry is OPEC’s decision to increase oil production by 2 million barrels per day (bpd) in August. This increase may come at unfortunate time if oil demand recovery stalls due to the spread of coronavirus.
Yesterday’s inventory report provided some hopes that oil demand recovery would ultimately put pressure on inventories. However, oil traders will likely wait for a decisive downside trend in crude inventories before pushing oil prices above the recent highs at $42.50.
Despite Coronavirus Worries, Oil May Still Repeat The Pattern Seen In The Last Few Months
Following the historic meltdown in April which took WTI futures into the negative territory, oil was able to reach the $40 level in June and continued to stay near this level for 2 months.
During this time, oil made three attempts to settle below the $40 level but each attempt was met with increased buying activity.
While the continued problems on the coronavirus front may prevent oil from developing significant upside momentum, a serious move below the $40 level may demand additional negative catalysts.
The main problem for the potential bear move is that OPEC+ deal has stabilized the market situation and eliminated fears of running out of the storage space.
The timing of oil demand recovery is, of course, important for near-term oil price dynamics but the market is focused on the future, and the ultimate rebound of oil demand is inevitable. This fact may limit oil’s losses even in case the virus situation gets worse.
For a look at all of today’s economic events, check out our economic calendar.