WTI Crude Oil Fails to Gain Positive Traction – a Fundamental Outlook 

Posted Thursday, September 3, 2020 by
Arslan Butt • 2 min read

During Thursday’s Asian trading session, the WTI Crude Oil prices failed to extend their gains of the previous day, dropping to an intra-day low at around 41.34, mainly due to the dubious story that is currently circulating, that Iraq is pushing for exemption from the OPEC output cuts. This, in turn, favored the energy bears and contributed to the losses in the oil price. Apart from this, the strength of the broad-based US dollar was further supported by the better-than-expected manufacturing data from the US, which was released on Tuesday, which can also be considered one of the main reasons behind the bearish trend in crude oil. 


On the contrary, the US Energy Information Administration’s (EIA) official upbeat inventory data failed to provide any support to the oil buyers, but it could be considered the key factor that is helping to limit deeper losses in the oil prices. Furthermore, the market risk-on tone, backed by the increasing odds of a further stimulus package and hopes for a coronavirus (COVID-19) vaccine, also failed to exert any positive impact on the oil prices. At the moment, crude oil is trading at $ 41.32, and consolidating in a range between 41.25 – 41.79.


On the data front, EIA data showed a 9.362 million-barrel draw in the crude oil supply for the week ended August 28, which was much bigger than the expected 1.887 million-barrel draw. This data came right after the American Petroleum Institute (API) report of a 6.360 million-barrel draw for the same period on Tuesday. The crude oil buyers failed to cheer this positive data, amid some fresh rumors concerning Iraq’s push for exemption from the OPEC+ output cut. 


Iraq’s Oil Minister, Ihsan Abdul Jabbar Ismaael, announced that they will seek separation from the output cut deal by OPEC and its allies (OPEC+) during the first quarter of 2021. However, it should that the country conformed with oil cuts at above 100% in August.

The latest data released on the day showed slower-than-expected job growth for August, and the ADP Nonfarm Employment Change, which at 428,000, came in much lower than the expected 950,000, could also have put pressure on the oil prices. This data fueled doubts about the US recovery from the pandemic, and it could also be keeping the oil buyers on the defensive.


The broad-based US dollar ignored the downbeat ADP Employment Change data, managing to maintain its gains of the previous day, and still flashing green. However, the modest gains in the US dollar kept the oil prices under pressure, as the oil price is inversely related to the price of the US dollar. Meanwhile, the US Dollar Index, which measures the greenback against a basket of 6 major currencies, rose by 0.03%, to 92.977.


On the other hand, the intensifying tensions between the US and China also added a burden to the crude oil prices. The tensions were further fueled after Secretary of State Mike Pompeo announced further sanctions on Chinese diplomats – a move that was harshly criticized by Beijing’s embassy in the US. These lingering Sino-US tensions keep challenging the risk-on market sentiment and contributing to the losses in oil. 


In the absence of the major data/events on the day, the market traders will keep their eyes on Friday’s Nonfarm Payrolls (NFP). The USD moves will also closely followed, as the recently downbeat ADP Print, which came it at 428K, versus the 950K forecast, suggests a further weakening of the employment numbers, which could drag the US dollar down.


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