WTI Fails to Keep Overnight Gains Amid Demand Growth Worries – All Eyes on API Data! 

Posted Tuesday, September 29, 2020 by
Arslan Butt • 3 min read

During Tuesday’s Asian trading hours, the WTI Crude Oil prices failed to extend their overnight gains, dropping below $ 40.50 from $ 40.79, mainly due to the ongoing rise in COVID-19 cases, which keep strengthening demand concerns and overshadowing the hopes for a new US stimulus package. Apart from this, the declines in oil were further bolstered after China raised further hardships for the Sino-American trade deal, which also weighed on the energy demand.

Furthermore, the demand worries picked up further pace, after the release of Japan’s oil import figures for August, which indicated that the island nation’s crude imports fell by 26%, according to government data. Meanwhile, the global oversupply fears were fueled after the rise in Libya’s crude production this week, from 100,000 barrels per day (BPD) to 250,000 BPD. This, in turn, exerted further downside pressure on the crude oil prices.

On the contrary, the weakness of the broad-based US dollar, triggered by a combination of other factors, could be considered one of the key issues that is helping to limit deeper losses in the crude oil prices. Besides this, the US Congress appears closer to agreeing on a stimulus package, which is also keeping a lid on any additional losses in the crude oil prices. At the moment, crude oil is trading at $ 40.22, and consolidating in the range between 40.14 and 40.70.

It is worth recalling that the crude oil prices were reporting gains in overnight trade, as investment was boosted by the latest political developments in the US. These hopes came after the House Speaker Nancy Pelosi announced a new Democratic $ 2.2 trillion coronavirus relief package that boosted the market. But the gains were short-lived, as the continued demand concerns, due to the coronavirus pandemic, outweighed hopes for a new US stimulus package. As per the latest report, approximately 1 million people have died of COVID-19 as of Tuesday, while the deaths and infections continue to surge in several countries.

Across the pond, the weak crude oil price was further challenged by the news that Libyan oil was now coming back onto the market. It is worth mentioning that Libya’s crude production has risen this week, from 100,000 barrels per day (BPD) to 250,000 BPD. As we know, the Libyan oil production was subject to a blockade for many months, which lowered the global supply and boosted prices. Apart from this, the Iranian sanctions-busting oil exports have also increased, with 1.5 million BPD now departing the country.

Furthermore, the losses in crude oil could also be attributed to the intensifying US-China tussle. The South China Morning Post (SCMP) published the news during the early Asian session, suggesting further hardships for the Sino-American trade deal. The reason for this is China’s inability to purchase even one-third of the US goods agreed upon, by the end of August. Moreover, the comments by the China Daily that “The Sinophobic policies of the United States are causing losses to China in the near term, but in the long run, China could benefit from them” also, keep challenging the US-China relations.

On the contrary, the market trading sentiment has been flashing green since the Asian session started, possibly due to the latest headlines suggesting a strong immune response to the coronavirus vaccine, with a single shot, in the early trial stages. Besides this, the market sentiment was further bolstered by the hopes of the US stimulus to combat the economic effects of the coronavirus (COVID-19). Apart from this, the optimism surrounding the Brexit also exerted a positive impact on the market sentiment. Thus, the upbeat market sentiment could be considered one of the key factors that helped limit deeper losses in the crude oil prices.

Despite the hopes of further stimulus, the broad-based US dollar remains depressed, taking offers on the day amid a market risk-on sentiment. On the other hand, the cautious mood of traders, ahead of Tuesday’s US presidential election debate between President Donald Trump and Democratic candidate Joe Biden, also weighed on the US dollar. However, the gains in the US dollar helped to limit any deeper losses in the oil prices, as the price of oil is inversely related to the price of the US dollar. Meanwhile, by 10:23 PM ET (2:23 AM GMT), the US Dollar Index, which tracks the greenback against a basket of other currencies, had dropped by 0.03% to 94.278, falling from the two-month high seen during the previous week.

Looking ahead, the market traders will keep their focus on headlines concerning Brexit, the pandemic and the US Presidential Election, all of which may offer important clues. Apart from this, the weekly inventory data from a private provider, the American Petroleum Institute (API), will be key to watch. Good luck!

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