WTI Crude Oil Trades Under Pressure Near $39.50 – EIA Report in Play! 

Posted Thursday, September 17, 2020 by
Arslan Butt • 3 min read

The WTI crude oil prices failed to extend the bullish run-up of the two previous consecutive sessions, dropping toward the 39.50 level, after the US Energy Information Administration (EIA) report, which showed a lower-than-expected draw of 4.389 million barrels for the week to September 11. This, in turn, undermined the crude oil prices.

On the flip side, the production platforms in the southeastern United States took steps to reopen output after Hurricane Sally, which fueled concerns about the weak fuel demand, pushing the oil prices lower. Across the ocean, the risk-off market sentiment, backed by geopolitical tensions between China and the US, also favored the crude oil bears and kept the prices under pressure. Meanwhile, the bullish bias of the broad-based US dollar, supported by the Federal Open Market Committee’s (FOMC) decision to keep the interest rate unchanged, also became the key factor that kept the oil prices under pressure. Presently, crude oil is trading at $ 39.50 and consolidating in the range between 39.42 and 40.29.

Furthermore, the latest reports suggesting that the production platforms in the southeastern United States have taken steps to resume output following Hurricane Sally, could be undermining the crude oil prices. Hurricane Sally, the second storm to hit the Gulf of Mexico area within the month, made landfall yesterday, and weakened into a tropical depression. Despite this, the Energy companies are gradually returning crews to offshore oil platforms in the aftermath of the storm, but the area’s production output of almost 500,000 barrels per day (BPD) was shut down ahead of Sally.

Apart from this, the bearish sentiment surrounding crude oil was further bolstered by the EIA’s report of a 3.461 million-barrel rise in weekly distillate stockpiles, which was much bigger than the expected 600,000-barrel build and the 1.675 million-barrel draw of the previous week. This eventually raised concerns about fuel demand for the world’s biggest economy and consumer of fuel.

Across the ocean, the second wave of coronavirus infections could be considered as the major factor behind the bearish run-up in oil. As per the latest report, the number of COVID-19 cases continues to rise in India, the UK, Spain and some parts of the US. 

On the subject of the US-China tussle, the tensions between the United States and China continued to gain pace. It is worth recalling that US President Trump recently warned the World Trade Organization, due to the fact that they favored China regarding the Trump administration’s decision to levy multiple trade sanctions on China. These gloomy headlines exerted downside pressure on the market trading sentiment, which kept crude oil under pressure.

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 $ 300 billion Republican proposal for the coronavirus (COVID-19) aid package, resulting in a further delay in the much-awaited stimulus package. This, in turn, is weighing on the market sentiment, contributing to the losses in crude oil prices.

On the USD front, the broad-based US dollar extended its early bullish trend, still flashing green on the day, due to the risk-off market sentiment. Moreover, the upbeat prediction in terms of the US unemployment data also helped the greenback to put in fresh bids. Let me remind you that the US dollar saw losses in the wake of the Fed’s comments and disappointing US Retail Sales data, but gradually erased its losses after the Fed hinted at economic growth improving after COVID-19. However, the gains in the US dollar kept the oil prices under pressure, as the price of oil is negatively correlated to the price of the US dollar. Meanwhile, the US Dollar Index Futures, which tracks the greenback against a basket of other currencies, was up 0.45%, to 93.543, by 12:24 AM ET (5:24 AM GMT).

Looking ahead, the market players will keep their eyes on the busy economic calendar for near-term moves. The US Initial Jobless Claims and the US housing data will be key to watch. Meanwhile, the updates surrounding the fresh Sino-US tussle and the coronavirus (COVID-19) updates have not lost any significance. Good luck!

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