WTI Succeeds in Maintaining the Bullish Bias of the Previous Four Straight Days – A Fundamental Outlook!  

Posted Friday, September 18, 2020 by
Arslan Butt • 2 min read

The WTI crude oil prices succeeded in extending the gains of the previous day, hitting a 2-week high above the mid-41.00 mark, as the latest storm started growing in the Gulf of Mexico, putting crude on track for a weekly gain of about 10%. Moreover, the sentiment surrounding crude oil improved further, after OPEC+ showed its willingness to take action against those not complying with the rules.

On the other hand, the gains in the crude oil prices could also be attributed to the weakness of the US dollar. The USD is being depressed by the disappointing US employment data, which has eventually dampened both the economic outlook and the investor sentiment. On the contrary, the latest headlines, which suggest the resumption of oil production in the Gulf of Mexico, has become the key factor that is capping any further upside momentum for the crude oil prices.

Meanwhile, the market risk-off sentiment that was triggered after the Fed’s hint at another stress test for large banks, and the push for another national lockdown by UK scientists, could also be considered key factors that are continuing to challenge the gains in oil prices. WTI crude oil is currently trading at 41.40 and consolidating in the range between 40.80 and 41.49.

On the other hand, the oil prices were further bolstered by the latest reports that US oil production was subjected to a shutdown, as Hurricane Sally was headed towards the US Gulf Coast. This, in turn, overshadowed the concerns over the market deficit, as per Goldman Sachs (NYSE: G.S.).

Across the pond, the broad-based US dollar failed to gain any positive traction, edging lower on the day, as doubts persist over the global economic recovery from the coronavirus crisis. This was witnessed by the disappointing US employment data. Apart from this, another rout in US tech stocks also undermined the US dollar. However, the losses in the Greenback kept the oil prices higher, as the price of oil is negatively corrrelated 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 0.05%, to 92.927, by 12:48 AM ET (5:48 AM GMT).

Elsewhere, gains in crude oil were capped by the on-going doubts surrounding the US stimulus package, which keeps the market trading sentiment under pressure; besides this, the tensions between the United States and China picked up pace after the American Undersecretary for Economic Affairs Keith Krach’s scheduled visit to Taiwan. This, in turn, undermined the market trading sentiment and became the key factor that capped any further upside for the oil prices.

Looking ahead, market traders will keep their eyes on the movement of the USD, amid the lack of major data/events on the day. However, the US Michigan Consumer Sentiment Index for September, which is expected to come it at 75 versus the previous 74.1, is likely to help resolve near-term USD moves. Furthermore, the risk catalysts, like geopolitics and the virus woes, not to forget the Brexit, will also be key to watch for the fresh direction. Good luck!

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