Depressed Crude oil Lingers Below $40 – Quick Fundamentals Outlook!

Posted Friday, July 3, 2020 by
Arslan Butt • 3 min read

What’s up, traders?
Trading in crude oil is highly influenced by a series of high impact quantitative and qualitative fundamentals, and in this update, we are going to explore them all. The WTI crude oil prices failed to extend the previous session’s modest gains, dropping to the $40.13 mark, while representing 0.45% losses on the day. However, the reason for the selling bias in terms of oil prices could be attributed to the heightened concerns over a second lockdown in the U.S., triggered by the surging number of confirmed coronavirus cases. Crude oil buyers failed to support the bullish bias, amid a risk-on market sentiment that was backed by positive data from the U.S. and China. At the press time, the WTI crude oil prices are trading at 40.18 and consolidating within the 40.13 – 40.50 range.

Furthermore, the previous day’s gains on WTI crude oil were bolstered by the U.S. Energy Information Administration data, which indicated a fall in U.S. crude inventories by 7.2 million barrels, against the forecast of -0.71 million barrels and +1.442M previously. However, the resurgence of the coronavirus cases globally and in the United States overshadowed positive economic events from the U.S. and China.  

As per the latest report, the United States confirmed a record number of coronavirus cases for the 3rd day straight on Thursday, with the latest numbers being 52,789. In the meantime, Florida reported 10,109 new cases, while Texas recorded 7,915 new cases on the previous day. The record hike in the virus cases urged the Trump administration to think about a second economic lockdown, which weighed on the economic sentiment. However, the intensifying of the pandemic situation turned out to be one of the key factors that kept a lid on any additional crude oil losses.

As discussed previously, the crude oil buyers failed to cheer the recent upbeat market sentiment, which was backed by the better-than-expected United States Nonfarm Payrolls data. The NFP report showed that the U.S. economy had created 4.8 million jobs in June, versus market expectations of 3 million, whereas, the previous month’s reading also recovered to +2,699 million versus the 2,509 million reported earlier. The unemployment rate dropped more than expected to 11.1%, from 13.3% previously. Better-than-expected labor market figures boosted the investor’s confidence, driving a slight buying trend in crude oil.

On the other hand, the latest declines in crude oil could also be attributed to Moody’s latest downbeat comments about the demand growth outlook. According to the recent research report, Moody’s Investors Service hinted that the “Global oil demand might have soared to highs in 2019, as COVID-19 has heightened the risk of behavioral changes.”

During early Friday morning in Asia, the U.S. Secretary of State, Mike Pompeo, criticized the Chinese Communist Party (CCP) for turning the Hong Kong nation from one of the world’s most stable, wealthy, and powerful cities to another communist-run city. In the meantime, the Hong Kong activist, Nathan Law, said that human rights activists were urging global leaders to help get justice against China’s latest actions. Elsewhere, the latest report suggested that many business people and experts in Hong Kong were seriously considering leaving the city, due to China’s crackdown, and this could exert additional downside pressure on the market’s risk-tone sentiment, which is already under pressure due to the coronavirus (COVID-19) concerns.

Besides this, the tussle between China and Australia picked up further momentum as China recently indicated their intention to impose 12% tariffs on Australian beef, thereby hitting back at Aussie PM Scott Morrison’s announcement that he would make Australia a safe-haven for citizens of Hong Kong. Today, in the absence of U.S. traders, the market will focus on the Hong Kong and virus updates, in order to predict the future of crude oil. Stay tuned, as we may have a signal during the late European trading hours. Good luck 

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