Crude Oil Manages to Regain its Bullish Momentum – a Quick Fundamental Outlook! 

Posted Tuesday, September 1, 2020 by
Arslan Butt • 3 min read

Today, in the Asian trading session, WTI Crude Oil stopped its overnight losses, taking fresh bids above the $ 43.00 level, mainly due to the weakness of the broad-based US dollar, driven by the bets of continuous low US Rates. The US dollar hit the 28-month low, declining to 91.99, despite the Dallas Fed Manufacturing Business Index having grown beyond -3 to +11 in August. 


Thus the fresh weakness of the US dollar could be considered as the major factor behind the bullish run-up for oil. Apart from this, the market risk-on trading sentiment, backed by the upbeat activity numbers from the key countries, also supported the oil prices. The better-than-forecast NBS Manufacturing PMI from China, in particular, boosted investor confidence regarding the fuel demand. 


On the contrary, the US-China tussle and long-lasting fears and uncertainty surrounding the American aid capped any further upside in the crude oil prices. At the moment, WTI Crude Oil is trading at 43.05 and consolidating in the range between 42.77 and 43.09. Moving on, the traders seem cautious to place any strong bids, as they are still uncertain about the pace of the economic recovery, as most of the countries continue to battle the coronavirus pandemic, with COVID-19 lockdowns still in effect in many places.


The market trading sentiment has continued to receive support, thanks to the positive activity numbers from the US, China and Australia, which have fueled economic recovery. The optimism was evident after China’s Caixin Manufacturing Purchasing Managers’ Index (PMI) figures for August showed an increase to 53.1, and Japan’s Manufacturing Purchasing Managers’ Index (PMI) showed an increase to 47.2 in August. On the flip side, the decreasing coronavirus (COVID-19) cases in the US and news regarding the coronavirus vaccine also exerted a positive impact on the market trading sentiment, contributing to the gains in the oil price.

However, with regard to the major factor behind the bullish run-up for oil, the weaker US dollar also comes to mind. On the USD front, the currency remained bearish, recording its lowest rate since the level of May 2018 on the day. However, the reason could be associated with the Federal Reserve’s new policy framework, which fueled bets that the US dollar will continue to remain low compared to other currencies. The losses in the US dollar 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 Futures, which tracks the greenback against a basket of other currencies, had dropped by 0.21%, to 91.938, by 10:07 PM ET (3:07 AM GMT).


On the contrary, the fears in the market regarding the US-China tussle and uncertainty surrounding the US aid package, not to forget the on-going uncertainty over the recovery of the fuel demand, could all be considered major factors that are keeping a lid on any additional gains in the oil prices. It is worth mentioning that market traders are keeping their eyes on the sluggish recovery of the fuel demand, as most of the countries are still facing coronavirus pandemic issues. There are also fears that COVID-19 lockdowns could be reimplemented.


Reports that the global oil supply is expected to increase, considering the decreasing fears of Hurricane Laura and the recent rise in the Baker Hughes Rig Counts, could also be capping the oil gains. The OPEC+ decision to ease cuts in the global output could also be weighing on the oil prices.


On the US-China front, the Sino-US tensions continued to boil, after the US said that it would hold a new two-sided economic dialogue with China on Monday. Meanwhile, the tensions between China and Australia also warmed up when the Chinese authorities arrested Australian news anchor Cheng Lei, who worked for the Chinese government-run station CTGN. These gloomy headlines also kept investors cautious.


Looking ahead, market traders will keep their eyes on the US manufacturing activity data for August, which is scheduled to be released later in the day. Durable goods and employment will also be key to watch. In the meantime, the updates surrounding the fresh Sino-US tussle, this time over the South China Sea, and the coronavirus (COVID-19) updates, have not lost any significance. Good luck! 


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