WTI Crude Oil Under Pressure, Falls Below the $ 41.00 Mark – Stronger Dollar Plays a Role!

Posted Friday, September 4, 2020 by
Arslan Butt • 3 min read

During Friday’s Asian trading session, the WTI Crude Oil prices failed to put a stop to the bearish momentum of the previous day, printing a 3-day losing streak. It dropped to almost under the $ 41.00 level on the day, despite the latest positive weekly inventory data from the US American Petroleum Institute (API) and the official Energy Information Administration (EIA) update. However, the bearish tone surrounding the crude oil prices could be associated with the strength of the broad-based US dollar, backed by the market optimism concerning the coronavirus (COVID-19) vaccine and recent positive data from the world’s largest economy.

The fresh risk-off market sentiment, triggered by the geopolitical tensions and the inability of US Congress to reach an agreement on the US latest COVID-19 stimulus package, also weighed on the oil prices. On the contrary, the fresh report from Iraq, that it remains fully committed to the OPEC agreement, became the key factor that capped any further downside momentum for crude oil prices. However, this report came after rumors that Iraq was seeking exemption from the output cut deal agreed upon by OPEC and its allies (OPEC+). Crude oil is trading at $ 41.05 and consolidating in a range between 40.84 and 41.28.

Prices for the black gold were largely unaffected by the latest upbeat weekly inventory data from the US American Petroleum Institute (API) and the official Energy Information Administration (EIA) update. It is worth recalling that the 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) reported a 6.360 million-barrel draw for the same period on Tuesday.

Moreover, the reason for the bearish sentiment around the crude oil prices could be the rising tensions between the United States and China. The long-lasting US-China conflict is still drawing market attention, as China’s Global Times (GT) recently warned the US to cut its US debt holdings. This came after the Trump administration announced additional hardships for diplomats from Beijing. As per the keywords, China may slowly reduce its holdings of US Treasury bonds to approximately $ 800 billion, from the current level of more than $ 1 trillion, as the ballooning US federal deficit increases default risks and the US administration continues its attack on the Dragon Nation.

Also weighing on the market risk sentiment was the failure of the Democrats and Republicans to offer any updates on the coronavirus (COVID-19) relief package, amid political differences. This also fueled worries about the US economic recovery, which keeps the oil traders cautious. Despite House of Representatives Speaker Nancy Pelosi and Treasury Secretary Steve Mnuchin’s agreement on the stop-gap funding, before the current bill expires on September 30, uncertainty still remains over the US package.

On the contrary, the coronavirus concerns also keep challenging the energy traders. However, the virus fears were overshadowed by hopes regarding a coronavirus (COVID-19) vaccine, which might lend support to the market trading sentiment and help to limit deeper losses in crude oil.

On the USD front, the broad-based US dollar managed to keep its gains throughout the day, as traders were cheering the Upbeat US data. However, the gains in the US dollar seem rather unaffected by the downbeat US ADP data, at least for now. The gains in the US dollar were further bolstered by the risk-off market sentiment that kept the market’s safe-haven demand high. Thus, the gains for the currency could be considered the key factor that kept the oil prices under pressure, 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 currencies, had inched up to 92.47, by 10:23 PM ET (2:23 AM GMT).

The reports that production in the Gulf of Mexico is set to resume, after the interruption caused by Hurricane Laura, could also be weighing on the crude oil prices. As per the latest report, the US Bureau of Safety and Environmental Enforcement (BSEE) announced that all dynamically positioned rigs have come back to their working locations in the Gulf of Mexico, but production has not yet restarted on 16% of rigs.

Moving ahead, market traders will keep their eyes on the US employment data, USD price dynamics and coronavirus headlines, which could give a hint regarding the fresh direction for oil. However, the unemployment rate declines of 10.2% to 9.8% may provide further impetus for losses in the greenback, keeping a barrel of the commodity heavy. Nor did the coronavirus (COVID-19) updates, US stimulus news and the US-China tensions lose any significance on the day. Good luck!

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