WTI Under Pressure Amid Warnings Over a Second Coronavirus Wave – All Eyes on the API Stockpile!

Posted Wednesday, September 9, 2020 by
Arslan Butt • 3 min read

During Wednesday’s Asian trading session, the WTI Crude Oil prices failed to stop their bearish run-up of the previous day, dropping further toward the 36.00 level, after large declines during the previous session, as the number of COVID-19 cases resurged in many countries. In turn, this raised worries that the global economic recovery could come to a halt in the wake of the renewed increase in the number of coronavirus cases.

On the other hand, the risk-off market sentiment, backed by geopolitical tensions between China and some notable countries like the US, the UK and India, also favored the crude oil bears, keeping the prices under pressure. Meanwhile, the bullish bias of the board-based US dollar, triggered by the upbeatdata from the NFIB Small Business Index and risk-off market moves, also became the key factor that kept the oil prices under pressure. The report that Abu Dhabi has followed Saudi Arabia’s lead in cutting oil prices could also be weighing on the crude oil prices.

At the moment, crude oil is trading at $ 36.44, and consolidating in the range between 36.17 and 36.84. However, the crude oil traders seemed cautious to place any strong position, as they await the weekly release of private stockpile data from the American Petroleum Institute (API) for fresh impetus.

As a result of the multiple negative catalysts, the stocks in Asia-Pacific still represent the risk-off market sentiment, with the S&P 500 Futures having dropped to a one-month low, as global markets await fresh clues of an extension of Tuesday’s negative move, which helped the safe-haven US dollar and dragged crude oil down.

On the USD front, the broad-based US dollar extended its bullish trend of the previous day, amid downbeat sentiment in the market. Besides supporting the US dollar, the prices could be the major selloffs in US stocks. The American markets saw a second rout in tech stocks in less than a week, underpinning the US dollar. However, the gains in the USD 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, which tracks the greenback against a basket of other currencies, had risen by 0.07%, to 93.502, by 10:01 PM ET (3:01 AM GMT).

However, the second wave of the coronavirus could be considered the major factor behind the bearish run-up in oil. As per the latest report, the COVID-19 cases continue to rise in India, the UK, Spain, and some places in the US. Meanwhile, as per data from the Johns Hopkins University, the number of cases globally is also picking up pace, having reached 27.5 million as of September 9.

Regarding the US-China tussle, the rising tensions between the United States and China continue to accelerate. It is worth recalling that US President Donald Trump recently warned that he would “stand tough against the Dragon Nation” if he is re-elected. As we are all well aware, the Trump administration recently announced further punitive measures against Chinese diplomats. As a result, China announced new visa restrictions to counter the Trump administration’s actions against China. This tit-for-tat response from the two mighty nations could be headed for a major war.

On the other hand, the  lack of progress on the fiscal package also weighed on the risk-tone and contributed to the losses in oil. Notably, the Democrats are bothered by the Republicans’ $ 300 billion proposal for the coronavirus (COVID-19) aid package and have indicated a further delay in the much-awaited stimulus. This, in turn, weighed on the market sentiment, and contributed to the losses in the oil prices.

The fresh reports that Abu Dhabi is going to follow in the footsteps of Saudi Arabia, in cutting oil prices, could also be weighing on the oil prices. However, the update suggests an increase in the global oil producers’ push, despite the coronavirus (COVID-19) issue undermining the demand. Moreover, the end of the Western world’s driving season is also adding pessimism regarding the crude oil prices.

Apart from this, the reason for the downbeat trading sentiment could also be attributed to Brexit concerns. It is worth mentioning that the Brexit talks remain on an uncertain track, as the UK plans to alter the Withdrawal Agreement, and the European Union (EU) is not impressed.

Looking ahead, the market players will keep their eyes on the API Weekly Crude Oil Stock data for the period ended on September 04. Considering the extreme draw of -6.36M recorded during the previous week, any recent recovery in the data is likely to put pressure on crude oil prices. Elsewhere, the updates concerning the US fiscal package talks could also provide fresh direction for oil traders. Good luck!

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