Oil Bears take Control

This prevailing macro had quenched oil bulls resolve in breaking above $45/Barrel in the mid-term as the number of caseloads surged past 40 million.

Both major crude oil benchmarks, however remained above $40/Barrel but selling pressure of late, have intensified around their critical support levels, meaning the bears now hold the ace in testing below such levels as global energy demand falter in the near term.

Although oil traders are not having sleepless nights on the bias that crude oil prices are relatively stable after that the sharp plunge seen at the start of September. Brent crude has been able to recover to the $42/barrel price level but low volatility and choppy price range sighted in its most recent price action is sending warning signals to oil traders that oil bulls are momentarily exhausted.

In spite of such dampening fundamental, oil traders are highly skeptical that a repeat of a March and April decline will come to play amid renewed lockdown modes sighted in emerged markets like France, Germany and United Kingdom.

The global demand picture for crude oil still remains fragile on the basis that the restriction of human mobility will continually weigh on crude oil demand/supply rebalancing, amid major oil players that include the Saudis and Russians not giving a clear picture if they would reconsider the planned early next year output boost.

That said, oil traders will also focus on the outcome for the long-awaited US stimulus deal in the near term as such positivity from that deal could awaken oil bulls and push Brent crude prices above $43/barrel.

For a look at all of today’s economic events, check out our economic calendar.

Oil Price Fundamental Daily Forecast – Gains Capped by Intensifying COVID-19 Second Wave Worries

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are inching lower on Tuesday, while rangebound for a third session into a technical retracement area. The price action indicates investor indecision and impending volatility despite worries about further demand loss due to rising coronavirus cases and the potential for increasing supply.

At 06:00 GMT, December WTI crude oil futures are trading $40.93, down $0.13 or -0.32% and December Brent crude oil is at $42.46, down $0.16 or -0.38%.

Rising COVID-19 Cases Expected to Weigh on Demand

The story that continues to dominate the trade and keep a lid on prices is worries a resurgence of coronavirus cases globally is stifling a promising recovery in fuel demand, while growing output from Libya adds to plentiful supply.

The threat of another wave of coronavirus cases is certainly painting a bleak picture for demand. There doesn’t appear to be an end in sight since measures such as social distancing and mask-wearing are being practiced in some areas and not in others. The outlook for a successful vaccine is also gloomy. It may be just a matter of time before another wave of demand destruction hits.

COVID-19 cases topped 40 million on Monday, according to a Reuters tally, with a growing second wave in Europe and North America sparking new clampdowns.

Rising Output from Libya Another Major Concern

Rising output from Libya, which is operating outside the OPEC+ pact, was adding to oversupply concerns.

Libya is rapidly ramping up production after armed conflict shut almost all of the country’s output in January. Output form its biggest field, Sharara, which reopened on October 11, is now at around 150,000 bpd, or about half its capacity, two industry sources told Reuters.

OPEC+ Holds Key to Controlling New Supply Worries

A meeting on Monday of a ministerial panel of the Organization of the Petroleum Exporting Countries (OPEC) and its allies, together called OPEC+, pledged to support the oil market as concerns grow over soaring infections.

For now OPEC+ is sticking with a deal to curb output by 7.7 million barrels per day (bpd) through December, and then shaving the cuts back to 5.8 million bpd in January.

Short-Term Outlook

The real question that needs to be answered is, will the oil market be able to absorb the around 2% of global supply that OPEC+ is expected to restart from January 1, 2021?

Oil demand is at about 92% of pre-pandemic levels, “but it’s too early to declare an end to the COVID-19 oil demand destruction era,” said Rystad Energy oil market analyst Louise Dickson.

We think the way of least resistance is down because we’re looking for demand to weaken and global supply to rise over the near-term. OPEC+ would have to change its mind and announce a reversal of its planned output increase from January, and a working vaccine would have to be implemented before we’d see a breakout to the upside of this current rangebound trade.

For a look at all of today’s economic events, check out our economic calendar.

Crude Oil Price Forecast – Crude Oil Continue to Put Traders to Sleep

WTI Crude Oil

The West Texas Intermediate Crude Oil market has done almost nothing during the trading session as we continue to dance around the same area that we have been in previously. The 200 day EMA sits just above, just as the 50 day EMA sits just below. Ultimately, this is a market that cannot seem to get its direction together, and therefore we simply go back and forth. There are concerns about demand, which of course is going to be an issue if we are going to have multiple economies around the world starting to slow down or even locked down. On the other hand, we also have an oversupply issue. The one thing that may send this market higher is the idea of stimulus.

Crude Oil Video 20.10.20

Brent

The Brent market also is going back and forth around a very tight range, as the 50 day EMA is currently sitting right at the $43 area. Ultimately, this is a market that also need to see some type of stimulus coming out of the United States in order for the rest of the world to suddenly jump in the idea of more demand for crude oil. If we do break higher, the 200 day EMA sitting just below the $45 level is going to be a major issue. Signs of exhaustion will be sold into, and that is from what I see the best trade available right now. To the downside, the $42 level is somewhat supportive, and most certainly the $40 level will be. We are essentially stuck in some type of tight range.

For a look at all of today’s economic events, check out our economic calendar.

Oil Gains Ground Despite Worries About Second Wave In Europe

Oil Video 19.10.20.

Oil Ignores New Restrictions In Europe

While many European countries have introduced various virus-related restrictions, most of them have avoided serious lockdowns. Wales, which is part of the UK, was the first one to announce a new lockdown in order to contain the second wave of the virus.

The lockdown will begin on Friday and last for two weeks. During this period, most citizens will work from home while all-non essential businesses will have to close.

Such lockdowns deal significant damage to oil demand but oil traders have managed to shrug off demand worries and continued to provide support to oil near the $40 level.

Perhaps, traders are betting that OPEC+ will keep current production cuts for some more months instead of increasing production levels by 2 million barrels per day (bpd) from January 2021.

Recent reports indicate that OPEC+ countries are worried about the current pace of oil demand recovery. OPEC+ cannot afford another collapse of oil prices because it will signal that it has lost control of the oil market.

In this light, OPEC+ members may be eager to suffer from lower production levels for a few additional months in order to show that OPEC+ is still the leading player in the market.

Libya’s Oil Production Increases To 500,000 Bpd

According to a recent Bloomberg report, Libya managed to restart its biggest oil field, Sharara, and increased its total production to 500,000 bpd. The increase of Libya’s production is another headache for OPEC+ since Libya is exempt from the production cut deal due to the civil war.

Sharara’s production capacity is about 300,000 bpd but current production is near 110,000 bpd. Thus, the field has plenty of room to increase production even if we take into account the potential damage done by the civil war. The continued increase in Libya’s oil production is certainly a negative catalyst for the oil market.

In addition to Libya, oil traders will pay attention to U.S. oil production as the recent Baker Hughes Rig Count report indicated that the number of U.S. rigs drilling for oil increased by 12 to 205.

Most likely, the upcoming EIA Weekly Petroleum Status report will indicate an increase in U.S. domestic oil production. If this increase is not met with higher demand, crude inventories will increase and put pressure on oil prices. Tomorrow, traders will have a chance to take a look at the latest inventory data since API Crude Oil Stock Change report will be released.

For a look at all of today’s economic events, check out our economic calendar.

Oil Price Fundamental Daily Forecast – IMF Doesn’t See Dramatic Price Recovery Anytime Soon

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading steady to lower on Monday shortly after the regular session opening, pressured by concerns over rapidly rising coronavirus cases globally and by supply worries after Libya announced plans to boost output.

At 13:13 GMT, December WTI crude oil is at $41.00, down $0.12 or -0.29% and December Brent crude oil is at $42.81, down $0.12 or -0.28%.

Crude oil prices are finding some support due to a weaker U.S. Dollar. Since crude oil is a dollar-denominated commodity, it tends to rise on foreign demand when the dollar weakens. The dollar is being pressured by renewed hopes for a U.S. fiscal stimulus package.

IMF Reveals 2021 Forecasts for Oil Prices and Middle East Economy

The International Monetary Fund (IMF) downgraded its outlook for Middle East and Central Asian economic recovery, predicting a 4.1% contraction for the region as a whole – 1.3 percentage points worse than its previous assessment in April – in its latest regional outlook report released Monday.

Jihad Azour, director of the IMF’s Middle East and Central Asia department, noted a large disparity in economic loss between oil importing and exporting countries as the region has been hit by the coronavirus pandemic and a plunge in oil prices.

Oil Prices Will Remain Under Pressure, IMF Says

Oil prices will be the most important factor for oil exporters’ recovery, particularly states like Saudi Arabia, Iraq, Iran, the UAE, Bahrain and Kuwait, for whom the commodity makes up the majority of revenue. While prices have recovered from their historic plunge in March of this year, international benchmark Brent crude is still trading nearly 40% below pre-pandemic levels.

And the IMF doesn’t see oil prices staging a dramatic recovery anytime soon, predicting prices in the $40 and $50 range in 2021. That’s still half the $80 per barrel figure OPEC kingpin Saudi Arabia needs to balance its budget, according to the fund.

“The projections for oil prices are in the corridor between $40 to $45 for … early next year, and will be between $40 to $50” next year overall, Azour said. “It think what is going to be also important to watch is the recovery in demand. That proved to be an important factor in what we saw this year, in addition to the supply that could come from alternative energies.”

Daily Forecast

The IMF also stressed diversification and continued coronavirus safety measures as key to strengthening the region’s economies, with a focus on providing opportunities for its youth population.

The reality is, at this time, there is no sign of the hoped for recovery. No signs of the coronavirus cases topping out, and no signs of a vaccine. All of these factors add up to lower demand.

For a look at all of today’s economic events, check out our economic calendar.

Oil: Stable, Finally?

Technical

Currently, it is in consolidation around $40.50 trading above 50-while all the Moving Averages are assembled in ascending order. Therefore, from the technical perspective, there is little indication for oil to lose value again.

Fundamental

OPEC+ is meeting today. The Joint Ministerial Monitoring Committee will hold an online reunion to check whether all the OPEC+ country members comply with the output cut policy – that the JMMC’s main objective and function normally. No new decisions are expected before OPEC+ next meeting on December 1, however, there is a certainty that the likelihood of easing the cut in the year is very low. Primarily, that’s because of the second wave of COVID-19 which keeps the demand outlook in a gray area.

In addition to that, Libya is reported to be increasing its output (that was previously reduced to minimum levels due to the military and political unrest in the country). Therefore, expect to see strict guidelines from the side of OPEC+ which will make sure the cuts are there to put firm ground to the price of oil. For us, it means it may be dropping from time to time to $36 as it did two weeks ago, but lower than that – OPEC+ will try to let that happen.

Election

A logical question related to the oil market is how a potential change of the US President will the oil price. Most observers agree that if something will change, that will be stability: with Joe Biden, it is expected to be higher. That is not because of specific points on his agenda related to oil but rather due to the general “change of attitude”: a steady one.

Donald Trump used to move markets – not only oil – with his tweets or comments, sometimes as eccentric as short. Joe Biden seems to be more “emotionally mature” if that may be ascribed to the manner a politician behaves. However, in reality, only time will tell. All we can say for now is that Joe Biden is generally much less “into oil” than Donald Trump – only that may be enough for the oil price to be more secure.

This post is written and submitted by FBS Markets for informational purposes only. In no way shall it be interpreted or construed to create any warranties of any kind, including an offer to buy or sell any currencies or other instruments. 

The views and ideas shared in this article are deemed reliable and based on the most up-to-date and trustworthy sources. However, the company does not take any responsibility for accuracy and completeness of the information, and the views expressed in the article may be subject to change without prior notice. 

China’s GDP Data Brings Back Oil Bears

Both oil benchmarks remained above the $40/Barrel price level.

Brent oil future prices were down 0.37% to trade at $42.77 at the time of writing and West Texas Intermediate crude lost about 0.41% to trade at $40.95.

China reported a 4.9% growth in GDP Y/Y for Q3, smaller than the 5.2% growth earlier anticipated by economic analysts. Although other fundamentals like China’s current unemployment rate was 5.4%, down from the previous quarter’s rate of 5.6%. Industrial production grew 6.9% Y/Y and retail sales grew 3.3% Y/Y, showing a rebound in China’s economic activity amid COVID-19 negative disruption.

However oil traders had hoped for a complete robust economic data from China, a top oil importer, which would mean the world’s economy had a strong footing taking into consideration China’s role in global trade but, its GDP numbers kept oil traders reducing long bets momentarily.

Crude oil bulls still remain under pressure, not surprising to see the recent OPEC’s efforts in curtailing present oil production. OPEC+ is scheduled to hold an all-important meeting on the last day in November, on strategies in limiting crude oil production from January 2021.

The bears might continue to have the limelight, with the resurgence of Covid-19 disrupting major global economies, the restriction on human mobility now observed in Western European countries like France, Germany coupled with the ramping up of oil production in Libya, has weakened the odds for crude oil prices finishing above $45/Barrel in 2020.

Oil traders are certainly nervous about the fact that the trajectory on Covid-19 infections has skewed upwards thereby raising doubts on a pre-COVID-19 economic recovery anytime soon and dampening the prospects for oil demand growth globally.

In addition, as global demand for gasoline remains fragile, OPEC+ will continue to remain under pressure to intervene and support crude oil prices, as long as possible.

For a look at all of today’s economic events, check out our economic calendar.

Oil Price Fundamental Weekly Forecast – Rangebound Trade but COVID-19 Remains Wildcard

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures finished marginally higher last week in a rather tricky trade that saw traders basically absorbing dire forecasts of weak demand due to a possible second-wave of COVID-19 and warnings of increased supply.

The markets treaded water most of the week with all of its gains attributed to an impressive rally on Thursday that erased an early session setback.

Last week, December WTI crude oil futures settled at $41.12, up $0.21 or +0.51% and December Brent crude oil closed at $42.93, up $0.08 or +0.19%.

Essentially we saw two catalysts last week, the bearish catalyst was new coronavirus lockdowns that raised concerns about fuel demand. The bullish catalyst was a drop in crude, gasoline and distillate inventories.

Despite the volatile price swings and the higher weekly close, the markets essentially remained rangebound for a fifth consecutive week.

Oil Eases as New Lockdown Raise Concern About Fuel Demand

Oil prices eased at times last week as new restrictions to stem a surge in COVID-19 infections dimmed the outlook for economic growth and fuel demand.

In Europe, some countries were reviving curfews and lockdowns to fight a surge in new coronavirus cases, with Britain imposing tougher COVID-19 restrictions in London on Friday. The reinstatement of pandemic restrictions is expected to cripple short-term demand forecasts.

In other potentially bearish news, OPEC and its allies are due to taper production cuts in January by 2 million barrels per day (bpd), from 7.7 million bpd currently. Additionally, Baker Hughes reported another increase in drilling platforms.

US Crude, Fuel Stockpiles Drop Sharply Amid Hurricane – EIA

U.S. crude stockpiles fell sharply last week, as offshore oil production was shut due to Hurricane Delta, while distillate inventories posted their biggest drop since 2003 as refiners shut as well, the Energy Information Administration (EIA) said last Thursday.

Crude inventories fell by 3.8 million barrels in the week to October 9 to 489.1 million barrels compared with analysts’ expectations in a Reuters poll for a 2.8 million-barrel drop.

Gasoline stocks fell by 1.6 million barrels, the EIA said, in line with expectations. Distillate inventories fell by a record 5.5 million barrels, according to the data.

Weekly Forecast

An international Energy Agency (IEA) forecast released last week sums up exactly why we believe in the rangebound trade continuing over the near-term.

The experts at the IEA provided a balanced assessment of the market saying that the global oil stocks which rose during the height of the pandemic are being steadily reduced. However, they also added that a second wave of the coronavirus is slowing demand and will complicate efforts by producers to balance the market.

The IEA comments were not too bearish and not too bullish so we expect more two sided rangebound trading.

For a look at all of today’s economic events, check out our economic calendar.

Arab SWFs Struggling with Rentier State Strategies

The last days Abu Dhabi Pension Fund and state-holding company ADQ announced that they will be investing $2.1 billion in ADNOC’s gas pipeline assets, acquiring a 20% stake in the ADNOC subsidiary with lease rights to 38 gas pipelines covering 982 kilometers.

The Abu Dhabi fund will partner in deal announced in June by a consortium of Global Infrastructure Partners (GIP), Brookfield Asset Management, Singapore’s sovereign wealth fund GIC, the Ontario Teachers’ Pension Plan Board, NH Investment & Securities and Italy’s Snam. The latter groups stated they will invest $10.1 billion in ADNOC gas pipeline assets for a 49% collective stake. ADQ, set up in 2018, is the owner of Abu Dhabi Ports, Abu Dhabi Airport and bourse operator ADX.

At the same time another Abu Dhabi SWF Mubadala announced that it has taken a 3.1% stake in the Spain-based gas system operator Enagas. The new stake falls in line with Mubadala’s investments in other Spanish assets in the oil and technology industries. Enagas owns stakes in firms in the Mediterranean region, Latin America and the United States.

Mubadala also announced that it invests 200 million euros ($235 million) in German pharmaceutical company Evotec SE as part of the Abu Dhabi wealth fund’s plans to expand its portfolio. The Abu Dhabi-based fund, managing around $232 billion, has engaged on a diversification strategy plowing mainly its cash in technology to prepare for a less-crude dependent future. Mubadala Investment stated that it will subscribe to 9.2 million Evotec shares, taking about a 5.6% stake in a private placement. In September, Mubadala acquired a 5% stake in private equity firm Silver Lake.

The Abu Dhabi moves stand contrary to its main rival Qatar’s Qatar Investment Authority (QIA). The latter, holding the main revenues of the former OPEC-member, officially has already assessed its own hydrocarbon sector companies investments. Mansour Al Mahmoud, QIA’s CEO, stated at an International Institute of Finance event that QIA has more than half of its assets invested in private equity and listed shares as it chases higher returns.

He indicated that QIA’s “approach is always to be a long-term investor, this gives us an advantage”. With around $295 billion in assets, the fund is now active mainly in stocks, private equity and venture capital. Mahmoud added that QIA had stopped investing in fossil fuel companies.

Still, roaming through last weeks’ media reports, the picture is diffuse. Arab SWFs also are reported to have invested in the Russian Sovcomflot IPO last week. The Russian entity has listed 17.2% of the company on the Moscow Stock Exchange, raising US$550M.

The Russian government still holds 82.8% of the shares in the company. The Sovcomflot IPO was supported by global bookrunners and coordinators, VTB Capital, Citi, Sberbank, JP Morgan and Bank of America. Russian sources stated that the shares were purchased by retail investors with the state Russian Direct Investment Fund (RDIF), Russia’s sovereign wealth fund.

Russian Direct Investment Fund CEO Kirill Dmitriev stated that main partners have come from leading sovereign wealth funds in the Middle East and Asia. Saudi Public Investment Fund, ADIA, QIA and others all are working with RDIF. Sovcomflot wants to expand in the key areas of sea energy transportation and seismic exploration. It will also help serve existing Russian and international energy projects more efficiently and participate in the development of new routes, including through the Northern Sea Route and the Arctic zone of the Russian Federation.

The above painted picture however is more opaque than shown in media. Arab SWFs are increasingly being tasked to fill in the financial gaps in their domestic markets, as oil and gas revenues of most Arab petrostates are dwindling. With COVID-19 continuing, global oil and gas demand destruction still high, and future prices still under extreme pressure, government revenues are not sufficient to cover budget deficits.

As has been shown in Saudi Arabia, the call on Aramco to provide additional cash, is growing, which is not different from the UAE, Bahrain, Kuwait and Qatar. The latter is even hit twice, as its major LNG projects and possible liquefaction expansion plans are facing a major global gas glut forcing prices to historically low levels. Dwindling Petrodollars are a fact of life for the coming years. The latter situation already is showing its ugly face in the Arab financial sectors too. Instability in the banking and financial markets in the region are increasing, as was reported also by ratings major S&P, in a recent report.

The latter stated that risks in the banking sector including reduced profitability as “the pandemic and drop in oil prices could mark the start of a new era” are continuing. The report indicated that “rated banks in the GCC face an uphill struggle in the next 18 months due to the protracted nature of the economic recovery and the expected gradual withdrawal of regulatory forbearance measures”. The Samba-NCB merger in Saudi Arabia is one of the outcomes already.

The latter ripples will for sure put a damper on the attractivity of Arab SWFs too. If the financials of these sovereign wealth giants are depressed further, oil-gas and construction or infrastructure projects in the region will feel the impact. Lower financial liquidity could impact possible future projects of Aramco, ADNOC, NOGA, QP or KOC, leading to a possible scenario as now is being shown by IOCs such as Shell, BP and Equinor. Less financial strength of Arab oil companies will not have a ripple effect on oil production and prices, but will be a Tsunami of unknown order.

Middle East Sovereign Wealth Fund Direct Transactions Comprise Larger Portion of Investments

Data: SWFI.com (SWFI Asset Owner Terminal)

Filter: Sovereign Wealth Funds. Amount Min: US$ 10,000,000. Type: Deal, New Security Issue, Open Market. No fund commitments.

Direct Sovereign Wealth Fund Transactions – Middle East and Asian SWFs Transaction Amount as a Percent of All SWF Transaction Amount

Year Gulf SWF Transactions / All SWF Transactions Asian SWF Transactions / All SWF Transactions
2020* 42.32% 22.09%
2019 26.98% 38.65%
2018 22.59% 49.12%
2017 15.64% 38.40%
2016 19.27% 36.34%
2015 18.19% 69.01%
2014 22.46% 46.24%
2013 13.13% 23.57%
2012 26.87% 46.89%
2011 33.49% 38.93%
2010 33.43% 41.12%
2009 42.94% 37.17%
2008 38.60% 47.98%

High Odds for COVID -19 Vaccines Support Crude Oil

Major crude oil benchmarks that include Brent crude ended W/W slightly lower, losing 0.2% as oil traders worry the London based oil contract, might have its demand tightening on the macro stating COVID -19 caseloads is exploding at an alarming rate in major European countries like Germany and the United Kingdom.

However the popularly known U.S oil grade West Texas Intermediate ended W/W quite impressive has it gained 0.7%, as recent U.S oil stockpiles printed an uptick in oil demand, coupled with the bias, the Republicans would pass some form of stimulus deal in smoothening the World’s largest fragile economy on sentiments showing the U.S election is fast approaching.

On the parabolic, the black liquid hydrocarbon faces intense pressure near term, on the bias revealing oil bulls in recent weeks seem to suffer momentarily from exhaustion, anytime they approach their immediate key resistance price levels coupled with another major bias that reveals low chances of gasoline demand/supply levels taking shape to pre-COVID-19 era, on sentiments that major oil producers might not be able to sustain their commitments in keeping with current oil production cut due to their weak earnings and high budget deficits, as most depend on the black fossil for their economic development.

In spite of the prevailing macro surrounding energy demand, many experts don’t see crude prices to breaching below the $35 /barrel support level, as the world’s leading Pharmaceutical Company Pfizer announced that its COVID-19 vaccine product would be ready before the year runs out.

A duly registered COVID-19 vaccine readily available at such time could propel crude oil prices near $45/Barrel and most importantly restore the type of volatility seen in the pre-COVID-19 era.

That said, Brent crude prices are still showing an impressive amount of resolve around the $40/barrel price levels amid profit-taking seen at around $43-$43.20 price levels on cyclic fundamentals showing oil traders exposed by the high geopolitical uncertainty.

It’s critical not to forget oil traders are kind of focused more, in the near term on the likely winner of the U.S election, on the sentiments that President Trump re-election will be a nice macro for the black fossil market amid his dwindling odds for re-elections.

For a look at all of today’s economic events, check out our economic calendar.

The Week Ahead – U.S Politics, COVID-19, Brexit, and Private Sector PMIs in Focus

On the Macro

It’s a busy week ahead on the economic calendar, with 57 stats in focus in the week ending 23rd October. In the week prior, 56 stats had been in focus.

For the Dollar:

It’s a relatively quiet week ahead on the economic data front.

On Tuesday, Wednesday, and Thursday, housing sector figures for September are in focus.

With mortgage rates hovering close to historic lows, the numbers are unlikely to have a material impact on the Dollar.

On Thursday, however, U.S jobless claims figures will influence ahead of private sector PMIs on Friday.

October’s prelim services, manufacturing, and composite PMIs are due out at the end of the week.

Expect the Services PMI to be the key driver. The markets will be looking for a pickup in service sector activity…

Away from the economic calendar, we are just over 2-weeks away from the U.S Presidential Election. Wednesday’s final live televised Presidential debate will garner plenty of attention as will chatter from Capitol Hill. We can also expect increased interest in the Senate Election polls.

The Dollar Spot Index ended the week up by 0.67% to 93.682.

For the EUR:

It’s also a relatively busy week ahead on the economic data front.

On Tuesday, German wholesale inflation figures are due out ahead of a busier 2nd half of the week.

On Thursday, Germany is back in focus, with November consumer climate figures due out.

Prelim October private sector PMIs from France, Germany, and the Eurozone will be the key drivers on Friday, however.

We can expect plenty of sensitivity to the numbers. A new spike in new COVID-19 cases in France and other parts of the EU may have impacted activity at the start of the quarter.

Away from the economic calendar, Brexit and COVID-19 will need monitoring throughout the week.

The EUR/USD ended the week down by 0.91% to $1.1718.

For the Pound:

It’s a busy week ahead on the economic calendar.

The markets will have to wait until Wednesday, however, for the first set of numbers.

Inflation figures for September are due out ahead of CBI industrial trend orders on Thursday.

We would expect the Pound to be sensitive to the inflation figures ahead of a busy end to the week.

On Friday, retail sales figures for September and prelim October private sector PMIs will provide direction.

With the BoE open to negative rates, dire numbers will test support for the Pound.

Of greater influence in the week, however, will be Brexit and COVID-19 news.

The GBP/USD ended the week down by 0.93% to $1.2915.

For the Loonie:

It’s a relatively busy week ahead on the economic calendar.

At the start of the week, wholesale sales figures for August are in focus on Monday.

We don’t expect too much influence from the numbers, however.

On Wednesday, September inflation and August retail sales figures will provide direction.

From elsewhere, expect GDP numbers from China and prelim private sector PMIs from the Eurozone and the U.S to also influence.

Away from the economic calendar, risk appetite will likely be dictated by COVID-19 and the U.S Presidential Election polls. There’s also the final presidential debate to consider on Wednesday.

The Loonie ended the week down by 0.52% to C$1.3189 against the U.S Dollar.

Out of Asia

For the Aussie Dollar:

It’s a particularly quiet week ahead on the economic calendar.

There are no material stats due out of Australia to provide the Aussie with direction.

The lack of stats will leave the Aussie Dollar firmly in the hands of market risk sentiment in the week.

Expect China’s GDP numbers and prelim PMIs from the Eurozone and the U.S to influence

On the monetary policy front, the RBA meeting minutes at the start of the week will garner interest. There has been the talk of an RBA move next month, the minutes could reveal what is on the cards…

The Aussie Dollar ended the week down by 2.20% to $0.7081.

For the Kiwi Dollar:

It’s also a relatively busy week ahead on the economic calendar.

In the 1st half of the week, 3rd quarter business confidence figures are due out. A pickup in confidence would provide support to the Kiwi ahead of a busy Friday.

Trade data for May and 3rd quarter inflation figures will influence at the end of the week.

While the stats will provide direction, however, economic data from China and COVID-19 will likely be the key drivers.

The Kiwi Dollar ended the week down by 0.96% to $0.6602.

For the Japanese Yen:

It is a relatively quiet week on the economic calendar.

Trade data for September will draw interest at the start of the week ahead of inflation at the end of the week.

We don’t expect the numbers to have too much influence on the Yen, however.

The key driver for the Japanese Yen, however, will be COVID-19 news and U.S politics.

The Japanese Yen ended the week up by 0.21% to ¥105.40 against the U.S Dollar.

Out of China

It’s a busy week ahead on the economic data front.

3rd quarter GDP numbers due out on Monday will be the key driver for the Yuan and market risk sentiment.

September’s industrial production, retail sales, and unemployment figures will also influence.

Barring particularly dire numbers, the fixed asset investment numbers should have a muted impact.

On the monetary policy front, the PBoC is in action on Tuesday. The markets are expecting the PBoC to leave loan prime rates unchanged. Any unexpected rate cut could spook the markets…

The Chinese Yuan ended the week down by 0.04% to CNY6.6976 against the U.S Dollar.

Geo-Politics

UK Politics:

On Friday, Boris Johnson announced that Brexit negotiations were over. Downing Street added the EU chief negotiator Barnier does not need to return to London in the week ahead.

Following the EU’s attempts to leave the ball in Britain’s court, with Fisheries a key issue, it now rests with the EU to compromise. Johnson has been clear that it would not leave fishing access unchanged, despite Macron’s attempts to strong-arm Britain into yielding.

For French fishermen, it would ultimately mean no access to UK fisheries should Britain leave without a deal…

Also at the start of the week, the British Prime Minister is due to announce more containment measures. With the number of new COVID-19 cases continuing to rise, further restrictions would be Pound negative.

U.S Politics

After last week’s individual town hall sessions, the final live televised debate will take place on Wednesday.

It will be a chance for Trump to narrow the gap ahead of the 3rd November Election.

If past performance is any indicator of future performance, however, it could just give Biden a greater edge.

As the markets begin to write-off a Trump victory, the focus will likely shift to the Senate Elections.

A blue wave is expected that would support further stimulus in the New Year.

Oil Price Fundamental Daily Forecast – Spike in COVID-19 Cases Expected to Drag on Demand in US and Europe

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures finished marginally lower on Friday, pressure by concerns that a spike in COVID-19 cases in the United States and Europe will continue to drag on demand in two of the world’s biggest fuel-consuming regions.

On Friday, December WTI crude oil futures settled at $41.12, down $0.12 or -0.29% and December Brent crude oil closed at $42.93, down $0.23 or -0.54%.

New OPEC Supply/Demand Fears

OPEC+, a grouping of the Organization of the Petroleum Exporting Countries (OPEC) and allied producers including Russia, fear a prolonged second wave of the pandemic and a jump in Libyan output could push the oil market into surplus next year, according to a confidential document seen by Reuters, a much gloomier outlook than just a month ago.

A panel of officials from OPEC+, called the Joint Technical Committee, discussed their worst-case scenario during a virtual monthly meeting on Thursday. That involved commercial inventories form major world consumers remaining higher than the five-year average in 2021, rather than falling below that mark.

US Oil and Gas Rig Count Rises By Most Since January

U.S. energy firms this week added the most oil and natural gas rigs since January as producers return to the wellpad with crude prices holding around $40 a barrel over the past several months, Reuters reported.

The oil and gas rig count, an early indicator of future output, rose for the fifth week in a row, increasing 13 to 282 in the week to October 16, energy services firm Baker Hughes Co said in its closely followed report on Friday.

The total rig count fell to a record low of 244 rigs during the week-ended August 14, while oil rigs alone fell to a 15-year low at 172 in the same week, according to Baker Hughes data going back to 1940.

U.S. oil rigs this week also posted their biggest build since January, rising 12 to 205 this week, their highest since June. Gas rigs rose one to 74, according to Baker Hughes data.

Speculators Trim Net Long Crude Futures and Options Positions

Money managers cut their net long U.S. crude futures and option positions by 9,442 contracts to 288,454 in the week to October 13, the U.S. Commodity Futures Trading Commission (CFTC) said on Friday.

Short-Term Outlook

The key takeaway from Friday is that the active spread of the pandemic across Europe and North American is likely to curtail the oil demand recovery and could lead to another round of demand destruction.

For a look at all of today’s economic events, check out our economic calendar.

The Weekly Wrap – Brexit, COVID-19, and U.S Politics Drive the Majors

The Stats

It was a busier week on the economic calendar, in the week ending 16th October.

A total of 56 stats were monitored, following 43 stats from the week prior.

Of the 56 stats, 24 came in ahead of forecasts, with 21 economic indicators came up short of forecasts. 11 stats were in line with forecasts in the week.

Looking at the numbers, 20 of the stats also reflected an upward trend from previous figures. Of the remaining 36 stats, 27 reflected a deterioration from previous.

For the Greenback, it was back into the green after 2 consecutive weeks in the red. The Dollar Spot Index rose by 0.67% to 93.682. In the week ending 9th October, the Dollar Spot Index had fallen by 0.87% to 93.057.

Market risk appetite waned in the week. There were a number of factors driving demand for the Dollar. A lack of progress towards a U.S stimulus bill and a spike in COVID-19 cases were front and center in the week.

Disappointing economic data and Brexit woes also supported the demand for the safety of the Dollar.

Out of the U.S

It was a relatively busy week on the economic data front.

Inflation figures drew interest early in the week. In the 2nd half of the week, however, jobless claims and retail sales figures were the key drivers. Prelim October consumer sentiment figures were also in focus late on Friday.

In the week ending 9th October, initial jobless claims stood at 898k, which was up from 845k from the week prior. The numbers reinforced the view that the labor market recovery had stalled.

A combination of dire labor market conditions, rising new COVID-19 cases, and a lack of further stimulus was a bad combination.

At the end of the week, retail sales impressed, however. In September, retail sales rose by 1.9%, with core retail sales rising by 1.5%. Economists had forecasted increases of 0.5% and 0.7% respectively.

Aligned with the retail sales figures was a further pickup in consumer sentiment. The Michigan Consumer Sentiment Index rose from 80.4 to 81.2 in October, according to prelim figures. The Expectations Index increased from 75.6 to 78.8.

The only negative on the day was an unexpected 0.6% fall in industrial production.

In the equity markets, the NASDAQ rose by 0.79%, with the Dow and S&P500 gaining 0.07% and 0.19% respectively.

Out of the UK

It was a relatively busy week on the economic data front.

Key stats included August unemployment rate and employment change and September claimant count figures.

While claimant counts came in lower than expected, employment fell by more than expected over the 3-months to August.

A 153k fall in employment led to an increase in the unemployment rate from 4.1% to 4.5%.

While the stats provided direction, it was ultimately Brexit and COVID-19 that sank the Pound in the week.

A continued rise in new COVID-19 cases and a new round of containment measures were Pound negative.

More significantly, however, was a lack of progress towards a Brexit agreement, with the EU pushing for more talks next week.

On Friday, Boris Johnson announced that it was time to prepare for a no-trade deal Brexit unless the EU changed its stance. Downing Street also stated that there was no point in EU negotiator Michel Barnier returning to London in the week ahead.

In the week, the Pound fell by 0.93% to $1.2915. In the week prior, the Pound had risen by 0.78% to $1.3036.

The FTSE100 ended the week down by 1.61%, partially reversing a 1.94% gain from the previous week.

Out of the Eurozone

It was a relatively busy week on the economic data front.

Early in the week, key stats included ZEW Economic Sentiment figures for the Eurozone and Germany.

The indicators flashed red for October. Germany’s Economic Sentiment Indicator fell from 77.4 to 56.1, with the Eurozone’s falling from 73.9 to 52.3. A lack of progress on Brexit and jitters over the U.S Presidential Election weighed in October.

Mid-week, industrial production figures for the Eurozone came up short of expectations, rising by just 0.7%. In July, production had jumped by 5.0%.

In the 2nd half of the week, Eurozone trade data and finalized inflation figures for September were in focus.

Inflation figures reaffirmed market concern over deflationary pressures. Trade data also failed to impress, with the Eurozone’s trade surplus narrowing from €27.9bn to €14.7bn in August.

While the stats provided direction, a marked increase in new COVID-19 cases weighed on the EUR in the week. France and other member states were forced to reintroduce containment measures amidst the 2nd wave.

For the week, the EUR fell by 0.91% to $1.1718. In the week prior, the EUR had risen by 0.94% to $1.1826.

For the European major indexes, it was a bearish week. The CAC40 and EuroStoxx600 fell by 0.22% and by 0.77% respectively, with the DAX30 declining by 1.09%.

For the Loonie

It was a quiet week on the economic data front.

Key stats included August’s foreign security purchases and manufacturing sales figures.

Neither set of numbers had an impact, however, as the fresh spike in new COVID-19 cases weighed on market risk sentiment.

The threat of a reintroduction of lockdown measures pegged back crude oil prices in the week.

In the week ending 16th October, the Loonie fell by 0.52% to end the week at C$1.3189. In the week prior, the Loonie had risen by 0.87%.

Elsewhere

It was a bearish week for the Aussie Dollar and the Kiwi Dollar.

In the week ending 16th October, the Aussie Dollar slid by 2.20% to $0.7081. The Kiwi Dollar ended the week down by a more modest 0.96% to $0.6602.

For the Aussie Dollar

It was a relatively quiet week on the economic calendar.

Key stats consumer confidence and employment figures.

It was a mixed bag for the Aussie Dollar. While consumer confidence continued to improve, employment figures were somewhat disappointing.

The unemployment rate rose from 6.8% to 6.9%, driven by a 29.5k fall in employment.

For the Aussie Dollar, it was ultimately market sentiment towards monetary policy and risk aversion that did the damage. There is the talk of an RBA next month…

For the Kiwi Dollar

It was a relatively quiet week on the economic calendar.

Key stats included electronic card retail sales figures and business PMI numbers.

The stats were Kiwi Dollar positive, with retail sales up by 5.4% and the PMI rising from 50.7 to 54.0.

While positive, however, market risk aversion pegged the Kiwi Dollar back in the week.

For the Japanese Yen

It was also a relatively quiet week on the economic calendar.

August’s core machinery orders and finalized industrial production figures were in focus.

The stats were skewed to the negative in the week. Core machinery orders rose by just 0.2%, following a 6.3% jump in July. Industrial production was revised down from 1.7% to 1.0%.

Ultimately, however, it was market risk sentiment that delivered the support for the Yen.

The Japanese Yen rose by 0.21% to ¥105.4 against the U.S Dollar. In the week prior, the Yen had fallen by 0.31%.

Out of China

It was a relatively busy week on the economic data front following last week’s holiday.

Key stats included September’s trade data and inflation figures, which were skewed to the negative.

China’s U.S Dollar trade surplus narrowed from $58.93bn to $37.00bn, driven by a 13.2% jump in imports. Exports rose by a more modest 9.9%.

Inflationary pressures also softened at the end of the quarter. China’s annual rate of inflation softened from 2.4% to 1.7% in September. Wholesale deflationary pressures picked up marginally. The producer price index fell by 2.1%, following a 2.0% decline in August.

In the week ending 16th October, the Chinese Yuan slipped by 0.04% to CNY6.6976. In the week prior, the Yuan had risen by 1.42%.

The CSI300 rose by 2.36%, with the Hang Seng gaining 1.11%.

Crude Oil Weekly Price Forecast – Crude Oil Markets Eke Out Gains

WTI Crude Oil

The WTI Crude Oil market initially pulled back during the week, breaking below the $40 level but has turned around to show signs of life again, which was exacerbated by a slightly better than anticipated inventory figure coming out of the United States. This of course is bullish, but at this point we still have to worry about the longer-term demand. After all, a lot of the economies around the world are starting to slow down and even lock down now, which of course cannot be good for the idea of crude oil demand.

Just above current trading is the 50 week EMA, and of course a major supply area in the $43.50 region. Because of this, I believe that it is only a matter of time before the markets start to see selling pressure yet again. Alternately, if we break down below the bottom of the candlestick for the week, then we probably drop down towards the $37.50 level. Looking at this chart, I think we could get a little bit of a short-term pop, only to see sellers jump back in.

WTI Oil Video 19.10.20

Brent

Brent markets of course are going to act very much the same but have a little bit further to go to the upside before the major supply comes into the technical analysis. The US dollar looks likely to make another attempt to strengthen sometime next week, so that will probably coincide with what is the inevitable pullback. Just as in the WTI market, if we break down below the hammer for the week, then we go much lower.

For a look at all of today’s economic events, check out our economic calendar.

Crude Oil Price Forecast – Crude Oil Markets Show Slight Positivity

WTI Crude Oil

The West Texas Intermediate Crude Oil market initially pulled back during the day on Friday but found enough support just below the $40 level to continue to show signs of life again. Given enough time, I do think that this market needs to make a bit of a decision, with the $43.50 level offering a nice target, and a massive amount of supply likely being a target. If we break down below the bottom of the hammer from the Thursday session, then it is likely that we go towards the $37 level underneath. All things being equal, this is a market that continues to be very choppy and heavily influenced by the US dollar.

Crude Oil Video 19.10.20

Brent

Brent markets pulled back slightly during the trading session on Friday but found support underneath the 50 day EMA. This is a market that I think continues to be very noisy and influenced by not only the US dollar, but the fact that demand is still iffy at best. With that being the case, I think that we will see a lot of noise, and therefore I think we need to figure out whether or not we are ready to make a bigger move. I suspect that we are not, so look for a lot of short-term back-and-forth trades.

With this being the case, the market is likely to see a lot of choppy in decision, but that has been the case for quite some time. If we were to turn around and fall, the $40 level should be massive support. Clearing that level to the downside would have the market falling apart.

For a look at all of today’s economic events, check out our economic calendar.

Oil Is Set To Finish The Week Above The Key $40 Level

Oil Video 16.10.20.

OPEC+ Believes That Demand Is Recovering Slower Than Expected

Yesterday, OPEC+ technical committee met to discuss the latest developments. According to reports, OPEC+ discussed how weaker oil demand outlook, surging coronavirus and increasing production in Libya could impact oil prices.

OPEC+ thinks that the current demand recovery is not as robust as previously expected. The main problem is the second wave of the virus which has already forced various countries to implement additional virus containment measures.

The increase of oil production in Libya is another worrisome development for the oil market. Libya, which is torn by a civil war, does not have to comply with any production quotas and aims to increase its oil production as fast as possible.

The key question is whether OPEC+ will decide to maintain current production cuts beyond this year. In recent days, Russia and UAE indicated that they were willing to increase production as planned in 2021 despite the second wave of the virus.

However, it looks like OPEC+ decision will be dictated by the state of the world economy in December 2020, and current statements from OPEC+ members may differ from their final decision.

U.S. Gasoline Demand Declines to 8.58 Million Barrels Per Day

EIA reported that U.S. gasoline demand declined from 8.9 million barrels per day (bpd) to 8.58 million bpd. A year ago, U.S. gasoline demand was 9.35 million bpd, so the current demand is lower by 0.77 bpd.

Gasoline demand quickly recovered from the lows reached at the peak of the crisis but this recovery stalled in recent weeks. At this point, gasoline demand stabilized at levels that are well below the levels seen in 2019.

Most likely, additional recovery of gasoline demand will require material improvements on the coronavirus front. Currently, the number of new daily cases in the U.S. is rising, and it’s hard to expect material progress on this front in the upcoming weeks.

Interestingly, oil traders have managed to shrug off coronavirus fears so oil has settled above the $40 level. The recent inventory report has clearly provided additional support to the market. However, continued demand recovery is necessary to push oil prices to higher levels.

For a look at all of today’s economic events, check out our economic calendar.

U.S. Stocks Set To Open Higher As Retail Sales Increased By 1.9% In September

Strong Retail Sales Report Could Provide More Support To Stocks

The U.S. has just provided Retail Sales data for September. On a month-over-month basis, Retail Sales grew by 1.9%. Analysts expected that Retail Sales would grow by just 0.7%. Year-over-year, Retail Sales grew by 5.4%.

Excluding Autos, Retail Sales increased by 1.5% compared to analyst consensus which called for growth of 0.5%.

The better-than-expected Retail Sales report will likely provide additional support to stocks, and S&P 500 futures are gaining ground in premarket trading.

Later, the U.S. will provide Industrial Production and Manufacturing Production reports for September. Industrial Production is expected to increase by 0.5% on a month-over-month basis while Manufacturing Production is projected to grow by 0.7%.

UK Prime Minister Boris Johnson Tells Britain To Prepare For A No-Deal Brexit

EU stated that negotiations with UK lacked progress and told London to compromise on key issues or face a no-deal Brexit.

In turn, UK Prime Minister Boris Johnson stated that it was time to prepare for a hard Brexit. According to reports, EU officials did not take Johnson’s words seriously and believed that UK will continue negotiations next week.

Meanwhile, the currency market is not buying the idea of a hard Brexit. GBP/USD and EUR/USD are gaining some ground, indicating that traders believe that UK and EU will ultimately manage to reach a compromise deal. The safe-haven U.S. dollar is losing ground against a broad basket of currencies.

A hard Brexit could hurt world markets as it will put pressure on EU and UK economies at a time when they try to deal with the second wave of coronavirus.

Oil Is Strong Despite Virus Worries

Yesterday, oil made an attempt to settle below the $40 level amid worries about new virus-related restrictions in Europe that could limit demand for oil.

However, oil managed to quickly rebound from lows at $39.25. Currently, oil is losing some ground but stays firmly above $40. The oil market has managed to ignore virus worries which indicates that oil gets strong support near the $40 level.

This strength could ultimately provide the much-needed support for the beaten oil-related stocks which significantly underperform the broader market.

For a look at all of today’s economic events, check out our economic calendar.

Crude Oil Price Update -Strengthens Over $41.50, Weakens Under $40.63

U.S. West Texas Intermediate crude oil futures eased on Thursday after posting a pair of volatile swings. The market started the session under pressure as new restrictions to stem a surge in COVID-19 infections dimmed the outlook for economic growth and fuel demand.

On Thursday, December WTI crude oil settled at $41.24, down $0.10 or -0.24%.

After the early sell-off, traders clawed back all of the earlier losses after the U.S. Energy Information Administration (EIA) reported an increase in U.S. petroleum demand last week that helped reduce crude stockpiles, while distillate inventories dropped by the most since 2003 as Hurricane Delta cut oil production and shut Gulf Coast refineries.

Daily December WTI Crude Oil

 Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through $42.02 will change the main trend to up. A move through $36.93 will signal a resumption of the downtrend.

On the upside, the key resistance area is a retracement zone at $40.63 to $41.50. The market is currently trading inside this zone. It is controlling the near-term direction of the market.

On the downside, the key support area is a retracement zone at $39.34 to $38.77.

Short-Term Outlook

An equal dose of bullish and bearish news this week has pinned the market inside a trading range. Therefore, trader reaction to $40.63 on the downside and $41.50 on the upside should set the tone of the market over the near-term.

Bullish Scenario

Holding above $40.63 will be the first sign of buyers, but taking out $41.50 will signal the buying is getting stronger. A sustained move over this level could trigger rallies into $41.74 and $42.02. Taking out $42.02 will change the main trend to up, while overtaking $42.41 could trigger an acceleration to the upside.

Bearish Scenario

A sustained move under $40.63 will signal the presence of sellers. This could trigger an acceleration to the downside into $39.34 to $38.77, much like Thursday’s price action.

For a look at all of today’s economic events, check out our economic calendar.

Crude Oil Stalls In Resistance Zone

CLEAR PRICE CHANNEL MAY PROMPT BIG BREAKOUT OR BREAKDOWN MOVE IN OIL

In this report, I discuss the recent price action in crude oil and how economic conditions and the pennant flag chart pattern is indicating a big price move is about to take place over the next few weeks.  While some of you may want a clear, bold prediction as to whether a breakout or breakdown may happen, as technical traders, our job is to predict different possible setups and identify the criteria that will tell us when to enter the trade upon confirmation. Read below to learn more.

Crude Oil has continued to retest the $41.75 to $42.00 resistance level over the past 30+ days. My research team believes this represents a very clear indication that further failure to advance above this level will prompt a moderate price decline – likely breaking below the $36.00 ppb price level.

We believe the completed Pennant/Flag Apex, highlighted in Light Green on the Crude Oil Futures chart below, represents a technical pattern suggesting a new price trend is pending.  The recent sideways price action, highlighted by the Gold Rectangle on this chart, shows the range of price recently that is currently presenting a very clear support level (near $36) and a very clear resistance level (near $42).

Our research team believes the downside potential in Crude Oil outweighs the upside price potential at this time because of two primary factors; continued COVID-19 cases and the likelihood that continued economic restrictions will stay in place and the pending change in the seasons (Winter is coming).  We believe these two factors will lead to lower demand for Crude Oil over the next 3+ months which could send Oil prices tumbling lower.

Currently, Our research team is watching Crude Oil for any price breakdown below $37 as a signal that downward price pressure has prompted a price move below the MIDPOINT of the Gold Rectangle sideways price range.  We believe when the price of Crude Oil breaks below the Midpoint of this range, there is a much stronger potential for a breakdown move below the $36 price level.  Of course, we would have to have technical confirmation of this breakdown in trend from other indicators, but as long as Crude Oil price stays above $38.25 the bias of price within the range is still Bullish in nature.

This may become a very good trading signal in the next few days or weeks ahead.  Traders should keep Crude Oil on their watch lists as this technical pattern plays out.

As a technical analyst and trader since 1997, I have been through a few bull/bear market cycles in stocks and commodities. I believe I have a good pulse on the market and timing key turning points for investing and short-term swing traders.  If you want to learn how to become a better trader and investor, visit www.TheTechnicalTraders.com to learn how we can help you make money with our swing and investing signals. Don’t miss all the incredible trends and trade setups, sign up today.

For a look at all of today’s economic events, check out our economic calendar.

Chris Vermeulen
Chief Market Strategist
www.TheTechnicalTraders.com

 

Oil Is Losing Ground Amid Virus Fears

Oil Video 15.10.20.

Fears About The Second Wave Of The Virus Put Pressure On Oil

Oil was not able to avoid the negative impact of the global market sell-off. Traders fear that the second wave of coronavirus in Europe will lead to a second wave of lockdowns which will put pressure on the economy and hurt demand for oil.

While the potential second wave of lockdowns looks scary, oil traders have mostly ignored the negative developments on the coronavirus front in recent weeks.

It looks like the market does not believe that new restrictions could seriously hurt demand for oil. For example, France has recently imposed a curfew on its biggest cities.

The curfew will certainly put pressure on small businesses in the services segment but its impact on demand for oil will be limited since the country did not impose any restrictions on travelling.

Interestingly, oil has managed to stay near the $40 level despite recent indications from OPEC+ that production will increase by 2 million barrels per day (bpd) at the beginning of 2021 despite the second wave of the pandemic. At this point, it looks like oil has found strong support near this psychologically important level.

Crude Inventories Decline By 3.8 Million Barrels

EIA has just reported that crude inventories fell by 3.8 million barrels. Gasoline inventories declined by 1.6 million barrels while distillate fuel inventories decreased by 7.2 million barrels.

There were two main catalysts for the decline in inventories. First, crude oil imports were down by 447,000 barrels per day (bpd) from the previous week. Second, U.S. domestic oil production declined from 11 million bpd to 10.5 million bpd due as the hurricane forced U.S. Gulf of Mexico oil producers to evacuate workers from oil platforms.

While the inventory report was bullish, it remains to be seen whether oil will be able to settle back above the $40 level amid virus fears. The U.S. oil production will soon get back to its previous levels so additional demand for oil is required to put more pressure on inventories.

For a look at all of today’s economic events, check out our economic calendar.