WTI Crude Oil Depressed Below Mid-$ 39.00 – Concerns About the Growth in Fuel Demand!

Posted Thursday, September 24, 2020 by
Arslan Butt • 3 min read

During Thursday’s Asian trading hours, the WTI Crude Oil prices registered a 3-day losing streak, with trading largely unchanged on the day, at almost below the $ 39.50 level, having already hit a low of 39.13. However, the reason for the bearish sentiment surrounding the crude oil prices could be attributed to the concerns that the economic recovery in the United States (the world’s biggest oil consumer) could grind to a halt, as the resurgence of the coronavirus is intensifying and an increase in European cases has resulted in new travel restrictions. All of this is keeping the market trading sentiment under pressure. Thus, the pessimism surrounding the coronavirus situation and the market risk-off sentiment will continue to play a major role in influencing the crude oil prices. Across the pond, the strength of the broad-based US dollar, backed by a combination of other factors, also played its role in undermining the oil prices.

Elsewhere, the losses in the crude oil prices were further bolstered after the release of the downbeat EU economic data and the lower-than-expected US demand. Apart from this, the oversupply concerns from Libya are also keeping the crude oil prices under pressure. At the moment, crude oil is trading at $ 39.42, and consolidating in a range between 39.13 and 39.64.

However, the concerns over the second wave of coronavirus infections and fears of renewed lockdown measures are putting constant pressure on the market trading sentiment, which has fueled  concerns about the growth in demand. This was evident after the figures released by the US Energy Information Administration (EIA), which showed a lower-than-expected draw of 1.639 million barrels for the week ending Sep. 18, against the predicted 2.325 million-barrel draw.

Apart from this, the number of COVID-19 cases continues to increase in Europe, which is also dampening investor enthusiasm. The EU released its Purchasing Manager Index data, which further fueled the worries about the region’s recovery prospects, with the services index falling through the 50-mark, which separates growth from contraction. On the other side of the Atlantic, the worries over the US economic recovery outlook, triggered by the disappointing data from the US, also dampened investor interest. This, in turn, undermined the crude oil prices.

Elsewhere, the risk-off market sentiment was further bolstered by the long-lasting disappointment over the lack of progress regarding the much-awaited fiscal package. This was further aggravated by the on-going tussle between the United States and China, which has soured even further. This eventually exerted downside pressure on the market trading sentiment, underpinning the safe-haven assets.

As a result, the broad-based US dollar succeeded in extending its gains of the previous day, taking safe-haven bids on the day, amid a market risk-off sentiment. However, the gains in the US dollar could be short-lived or temporary, due to the worries that the economic recovery in the US could grind to a halt, because of the resurgence of the coronavirus. Besides this, the USD gains were further boosted by the hawkish comments made by Chicago Fed President Charles Evans, suggesting that further quantitative easing may not provide additional support to the US economy. However, the gains in the US dollar kept the oil prices under pressure, as the price of gold is inversely related to the price of the US dollar. Meanwhile, the dollar index, which pits the dollar against a basket of 6 major currencies, stood at 94.336 on the day, coming close to a nine-week high.

Across the pond, the reason for the losses in crude oil could also be associated with the reopening of Libya’s oil industry. However, it is no clear why Libya’s National Oil Company (NOC) will be bringing its supply onstream. As per the NOC, “it will look to bring output to 260,000 barrels per day (BPD) by next week”.

Looking forward, traders will keep their eyes on US Federal Reserve (Fed) Chair Jerome Powell’s testimony. Furthermore, the US Jobless Claims and Housing data will also be key to watch. The updates concerning the US-China relations and the US stimulus package will not lose any significance either. Good luck!

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