WTI Crude Oil Failed to Extend Its Overnight Gains – Crude Oil Inventories in Focus 

Posted Thursday, September 10, 2020 by
Arslan Butt • 3 min read

During Thursday’s Asian trading session, the bullish overnight rally of the WTI Crude Oil prices ended. They dropped below the $ 38.00 level, mainly due to the bearish demand forecasts from the Energy Information Administration (EIA) and the weekly inventory data from the American Petroleum Institute (API). Besides this, the continued hike in the number of COVID-19 cases is fueling the worries that the global economic recovery could grind to a halt. This, in turn, weakened the crude oil prices.

On the other hand, the losses in crude oil could also be attributed to the flare-up in US-China tensions, and the fact that the OPEC+ output cut is scaling back. Price cuts by Saudi Arabia and Abu Dhabi are also weighing on the prices. On the other hand, the weakness of the broad-based US dollar, triggered by the risk-on market sentiment, became the key factor that kept a lid on any additional losses in the crude oil prices. Meanwhile, the price is ignoring the on-going risk-on market sentiment, backed by multiple factors. At the moment, crude oil is trading at $ 37.86, and consolidating in the range between 37.62 and 38.17.

On the data front, the American Petroleum Institute (API) reported a 2.970 barrel-build in the country’s crude stockpiles for the week ending September 4, compared to the 6.360 barrel-draw seen in the previous week’s data. However, the reason for this downbeat data could be associated with the resurgence of COVID-19 cases, which raised concerns about a sluggish recovery in the fuel demand. This was witnessed after the EIA lowered its global oil demand for 2020 by 210,000 barrels per day (BPD), to 8.32 million BPD.

On the coronavirus front, the number of global COVID-19 cases is still not showing any sign of slowing down, as it continues to rise instead; according to Johns Hopkins University data, there were approximately 28 million COVID-19 cases globally as of September 10. These fears keep hurting the positive trading sentiment.

Apart from this, the crude oil bears are also cheering the on-going tension between China and the US. It is worth reporting that American moves to punish Chinese technology companies and diplomats through several sanctions have repeatedly annoyed the Dragon Nation. The Sino-US tensions were further fueled after US President Trump warned that he would “stand tough against the Dragon Nation” if he is re-elected.

Despite these negative catalysts, the equity market has been trading positively since start of the day. However, the reason for this could be associated with the fresh headlines concerning the easing of virus-led lockdown restrictions in Tokyo. Another factor that could be supporting the trading sentiment is the talks over the TikTok app. TikTok’s parent company, Bytedance, is currently conducting talks with the US, to avoid the full sale of the company. This eventually trimmed the safe-haven demand in the market.

Moreover, the market sentiment was further supported by China’s inflation numbers and the US JOLTS Job Openings. As a result, the broad-based US dollar failed to maintain its winning streak of the previous day, dropping mainly due to the risk-on market sentiment.

Moreover, the losses in the US dollar could also be associated with a cautious sentiment ahead of the European Central Bank (ECB) meeting, which takes place later today. However, the losses in the US dollar have turned out to be a major factor that is capping any further downside momentum for the oil prices, 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 dropped by 0.10%, to 93.165, by 11:54 PM ET (4:54 AM GMT).

Looking ahead, the market traders will keep their eyes on updates surrounding the Sino-US tussle, as well as Brexit related headline. Simultaneously, the market traders seem cautious ahead of the ECB meeting as they await a strong positive message from the ECB, which is not very likely, to keep the recent rise. Good luck!

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