WTI Manages to Stop its Losing Streak of the Previous Day – A Quick Fundamental Outlook!  

Posted Friday, September 25, 2020 by
Arslan Butt • 3 min read

During the Asian trading hours, the WTI Crude Oil prices succeeded in putting a stop to the recent bearish moves, and started to flash green, but additional gains were capped by the ongoing doubts over the recovery in the fuel demand, as the number of coronavirus cases is still not showing any sign of slowing down. However, the sentiment surrounding crude oil improved moderately after the decline in US crude, gasoline and distillate inventories, which was reported by the US Energy Information Administration yesterday.

On the other hand, the gains in the crude oil prices could also be associated with the risk-on market sentiment, which was boosted by the hopes of the US stimulus package finally being approved. Other than this, the market mood was further bolstered by reports suggesting that Novavax Inc started a late-stage clinical trial of a coronavirus vaccine in the UK on Thursday, and this boosted investor sentiment and contributed to the gains in oil. Meanwhile, the fresh bearish bias of the broad-based US dollar, buoyed by the upbeat market sentiment, also impressed the oil bulls and kept the oil prices on the upside.

On the contrary, the US-China tussle and increasing numbers of coronavirus cases worldwide became the key factor that capped any further upside for crude oil. WTI Crude Oil is currently trading at 40.55 and consolidating in a range between 40.14 and 40.62.

It is worth mentioning that the Democrats in the US House of Representatives said they were working on a $ 2.2 trillion COVID-19 stimulus package, that could be voted on next week. This, in turn, boosted the hopes of the US stimulus package, keeping the market trading sentiment positive. Moreover, the positive sentiment was further bolstered after House of Representatives Speaker Nancy Pelosi and US Treasury Secretary Steven Mnuchin hinted at a resumption of the delayed stimulus talks. This eventually exerted a positive impact on the market trading sentiment, extending support to the oil prices.

Besides this, the market risk sentiment was also favored by the hopes of a new coronavirus treatment being approved. Reports suggest that Novavax Inc has started late-stage clinical trials of their coronavirus vaccine in the UK. The experimental vaccine is being produced in partnership with the government’s Vaccines Taskforce. The trials, which could take approximately 4-5 weeks, come after their vaccine candidates developed high levels of antibodies against the coronavirus in the early trials. Novavax further added that it might produce up to 2 billion annualized doses, once all capacity is brought online by mid-2021. Such headlines boosted the market trading tone and underpinned the oil prices.

As a result, the broad-based US dollar failed to maintain its positive momentum of the previous-day, edging lower on the day, as doubts about the US economic recovery remain, on the back of the coronavirus crisis. Furthermore, the fall in US dollar prices could also be attributed to the upbeat market sentiment, which tends to undermine the demand for safe-haven assets like the USD. The losses in the US dollar were further bolstered by reports suggesting that the unemployment claims rose unexpectedly last week, fueling fears that the recovery of the US economy is failing. Thus, the losses in the US dollar kept the oil prices higher, as the oil price is inversely related to the price of the US dollar. Meanwhile, by 9:52 PM ET (1:52 AM GMT), the US Dollar Index, which tracks the greenback against a basket of other currencies, had fallen by 0.03%, to 94.365.

On the contrary, the non-stop rise in the numbers of COVID-19 cases in Europe, the US and some notable Asian countries is continually fueling worries that the economic recovery is flailing, which, in turn, is pushing the fuel demand down. These fears escalated even further after the French Minister of health stated that the country would take new steps to address the virus outbreak.

Elsewhere, the gains in crude oil were also capped by the prospect of Libyan barrels returning to the market. As per the latest report, yesterday an oil tanker was loading cargo from one of three Libyan terminals that has been reopened recently, and more cargo is expected to be shipped in the coming days.

In the absence of any major data/events on the day, the market traders will focus on the speech by FOMC Member Williams. Apart from this, the Durable Goods Orders m/m will also be key to watch. Meanwhile, the movement of the USD and the coronavirus headlines will also be closely followed, as they play a key role in the oil prices. Good luck!

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