Crude Oil Surge Third Straight Week – Fundamental Outlook! 

Posted Friday, August 21, 2020 by
Arslan Butt • 3 min read

During Friday’s Asian trading session, the WTI Crude Oil prices hit the intraday high of $ 42.90. However, the reason for the ongoing bullish bias in crude oil could be the producer’s efforts to cut production, as concerns over the global economic recovery from the COVID-19 crisis increase. On the other hand, the risk-on market sentiment, backed by the possibility that the US Congress will continue to try to reach an agreement over the latest stimulus measure, also exerted a bullish impact on oil prices. 


The receding US-China tussle, and hopes of trade talks, also provided support to the market trading sentiment, contributing to the oil prices. In the meantime, the weakness of the broad-based US dollar, triggered by the downbeat US jobs data, also impressed oil bulls, and kept the oil prices bullish. On the contrary, the market traders did not pay any major heed to the mixed PMI numbers from Australia’s Commonwealth Bank, coronavirus (COVID-19) woes or the US-Iran tussle. As of writing, WTI Crude Oil is currently trading at 42.66, and consolidating in the range between 42.65 and 42.96.


Despite the clash between confused PMI numbers from Australia’s Commonwealth Bank and a 5-week low in new coronavirus (COVID-19) cases from Victoria, not to forget the worries of a rising second wave of the virus in the US, coupled with the delays in the much-awaited stimulus package, the market sentiment remained supported by the fresh optimism that the US-China trade deal talks are likely to happen “soon”, despite political differences. China’s Commerce Ministry recently confirmed that the trade deal between the China and the US remains intact, and they both have agreed to continue their trade talks “in the coming days”. He also added that “the trade talks are scheduled to evaluate the progress made in terms of the Phase 1 trade deal, at the 6-month mark, after it was reached in January.” Thus, the optimism between the US and China is keeping the oil traders confident.


On the other hand, the oil prices were further bolstered by the market’s hope of a recovery in demand, after further activity in August, despite looming virus woes. The internal report by the Organization of the Petroleum Exporting Countries and allies showed that the group known as OPEC+ was focused on assuring that members who had overproduced, against their commitments, would cut their output, as signaled after an OPEC+ meeting on Wednesday. In the meantime, the latest report suggests that OPEC+ finds that some members will need to cut output by 2.31 million barrels per day, in order to make up for their recent oversupply.

On the negative side, data published by the US showed that 1.106 million Americans had declared unemployment benefits during the previous week, exceeding both the anticipated claims of 925,000, as well as last Thursday’s figure of 971,000. This data fueled the doubts over the US economic recovery, which has become the key factor that is capping any further upside in the oil prices.


As a result, the broad-based US dollar failed to gain any positive traction, edging lower on the day, as doubts over the US economic recovery remain, in the face of the coronavirus crisis, as witnessed after the dismal US jobs data. However, the losses in the US dollar could also be attributed to the uptick in the US stock futures. The losses in the USD kept the oil prices higher, as the price of oil is inversely related to the price of the US dollar. Meanwhile, the US Dollar Index, which tracks the USD against a basket of other currencies dropped, inching down 0.09%, to 92.692, by 10:13 PM ET (3:13 AM GMT).


Elsewhere, the crude oil gains were also capped by the renewed doubts over the US stimulus package; it is worth mentioning that US House Speaker Nancy Pelosi recently took a U-turn from her previous positive remarks over the COVID-19 relief bill, stating that the “Timing is not right for a smaller coronavirus relief bill.”


In the absence of the significant data/events on the day, the market traders will keep their eyes on the movement of the USD and coronavirus headlines, which could play a key role in determining the intraday momentum for crude oil. Furthermore, the preliminary readings for the August PMIs will be key to watch. Good luck! 


Check out our free forex signals
Follow the top economic events on FX Leaders economic calendar
Trade better, discover more Forex Trading Strategies
Related Articles
0 0 vote
Article Rating
Notify of
Inline Feedbacks
View all comments