Crude Oil Failed To Extend Bullish Moves – Oversupply Fears in Play!
Arslan Butt • 3 min read
During Monday’s Asian trading session, the WTI crude oil prices failed to extend Friday’s winning streak, dropping to around the $40.28 level, while representing 1.06% in declines on the day, mainly due to the hopes of easing in terms of the global production cuts. However, backed by the hopes of further stimulus from the US, the risk-on market sentiment joined the International Energy Agency’s (IEA) upbeat forecast, which helped crude to oil limit its on-going slide.
On the other hand, the oil price declines could also be attributed to the virus woes and geopolitical tensions between the US and the rest of the global economies, like the European Union (EU), the UK and China, which also exerted some downside pressure on crude oil prices. At the moment, crude oil is trading at $40.25 and consolidating in the range between 39.96 and 40.52.
Besides this, Saudi Arabia, which leads OPEC+ (Organization of the Petroleum Exporting Countries) and its Russian-led allies, are expected to ease the output cuts, while indicating expected recoveries in global fuel demand. Saudi Arabia suggested that the output of two million barrels a day had been cut to the current 9.7 million barrels a day in production. However, the easing in existing supply cuts could reverse oil gains.
The reason could be associated with the reports of the latest IEA demand forecast for 2020. The institute’s report for the month of July reported that “the IEA estimates that global oil demand this year will average 92.1 million barrels per day, which is down by 7.9 million barrels per day compared to 2019, a slightly smaller decline than forecast in the last report.”
However, the long-lasting pandemic continued to reduce the oil demand from some of the biggest oil consumers. As per the latest report by the Johns Hopkins University, the US recorded has 59,747 new infections in the past 24 hours. At the same time, the total number of cases in the US crossed the 3.3 million mark and global figures exceeded 13 million. According to calculations by global institutes, more than 565,000 people have died as a result of the virus in the last 7 months. Unfortunately, as we know, the US is leading the race. At the same time, Brazil and India are also following in the footsteps of the US. The latest figures from Florida suggested over 15,000 new cases on Sunday, amid further pressure for schools to re-open and anti-mask protests.
Apart from the virus woes, the US-China dispute was on the cards, as US President Donald Trump announced that there would be no Phase 2 Trade Deal with Beijing any time soon, which initially weighed on the risk sentiment. However, the investors will now be looking out for China’s reaction to the statement Trump made on Friday.
Although the hopes of further stimulus from the US, backed by comments made by the President and CEO of the Federal Reserve Bank of Dallas, Robert Kaplan, combined with the positive results of the much-championed drug Remdesivir, keeping a lid on any additional losses in the oil prices. As a result, the S&P 500 Futures hit the levels of the June-highs, while gaining 0.46%, to reach 3,194 at the press time. Moreover, the US 10-year Treasury yields remain positive at around 0.64%.
Despite the ever-increasing number of new coronavirus cases and the US-China tensions, the broad-based US dollar failed to gain any positive traction, edging lower on the day. However, the US dollar losses could be attributed to the uptick in the US stock futures. However, the losses in the US dollar helped crude oil to limit its on-going slide, as the price of oil is inversely related to the price of the US dollar. Meanwhile, the US Dollar Index, which tracks the greenback against a basket of other currencies, slipped by 0.17% to 96.448, by 10:03 AM ET (3:03 AM GMT).
The oil prices recovered sharply from multi-decade lows in April, after OPEC+ and their allies, including Russia, reduced the output by a record 9.7 million barrels per day, for three months, beginning in May.
Lastly, in the absence of the major data/events to be released on the day, market traders will keep their eyes on the American Petroleum Institute’s (API) upcoming estimate of the crude oil supply, which is due on Tuesday, in order to assess the risk of an oversupply. However, traders will keep their focus also on USD price dynamics and coronavirus headlines, which could play a key role in influencing the intraday momentum. Good luck!