WTI Remains Depressed Amidst Surging Coronavirus Cases, Weakening Demand!

Posted Tuesday, July 7, 2020 by
Arslan Butt • 2 min read

In the early Asian trading session, the WTI crude oil prices failed to extend the modest gains of the previous session, dropping to the $40.13 level, while representing 0.45% losses on the day. However, the reason for the selling bias in oil prices could be attributed to heightened concerns over a second economic lockdown in the US, triggered by the increasing number of confirmed coronavirus cases. On the other hand, the crude oil buyers failed to cheer a risk-on market sentiment, backed by China’s stock market surge and upbeat figures from the world’s second-largest economy.

At the press time, the WTI crude oil prices are currently trading at 40.09 and consolidating within the 40.08- 40.78 range. The US West Texas Intermediate (WTI) Crude (CLc1) futures dropped 17 cents, or 0.4%, to $40.46 a barrel, at 03:40 GMT, after rising to as high as $40.79 earlier.

However, the resurgence of coronavirus cases globally and in the United States overshadowed the previous release of positive data from the US and China. The total number of US cases crossed the 2.9 million figure, while the number of deaths was reported as 130,000 yesterday, which eventually dampened investor sentiment globally, exerting downside pressure on the risk sentiment and providing support for the safe-haven assets. As per the latest report, corona cases in Texas rose 2.7% versus the 7-day average of 4.0%, while hospitalizations in Texas rose by 517, to a record high of 8,698. In the meantime, cases in Florida rose by 3.2%, versus the 7-day average of 5.1%, and cases in California rose by a record 11,529. However, the intensified concerns over a second economic lockdown in the US caused risk-off flows to continue their domination of the trading markets.

As we have already mentioned, crude oil buyers failed to cheer the recent upbeat market sentiment, backed by the reports that Chinese state media praised a “bullish stock market”, which triggered a rally.

On the other hand, the latest declines in crude oil could also be attributed to the US-China tussle and the trade tension between Brussels and the US. Meanwhile, the market risk-tone remained mostly directionless on the day, with Chinese equities failing to support the Asian stocks. Moreover, the US 10-year Treasury Yields and S&P 500 Futures also printed mild losses.

On the USD front, the broad-based US dollar succeeded in stopping the losses of the previous day. It rose sharply from the session’s low, mainly due to a renewed safe-haven demand, based on fears of the second wave of the pandemic, as coronavirus cases continued to rise. Although, at the same time, the gains in the US dollar kept the oil price down, as the price of oil is inversely related to the price of the US dollar. However, the US Dollar Index, that tracks the greenback against a basket of other currencies, gained 0.04%, rising to 96.718 by 12:34 AM ET (5:34 AM GMT).

The market traders will keep their eyes on the trade/virus updates for near-term direction. Also, traders seem cautious to place any strong position, ahead of the API data scheduled for release later in the day. In the absence of any major data/event, the global markets may witness a dull trading session ahead. Good luck! 

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