WTI Crude Oil Manages to Extend its Overnight Bullish Bias!

Posted Thursday, October 1, 2020 by
Arslan Butt • 3 min read

During Thursday’s Asian trading session, the WTI crude oil prices succeeded in maintaing the overnight winning streak and remained bullish, well above the $ 40.00 level, due to the surprise draw in the official oil inventories, as shown by the Energy Information Administration (EIA). Apart from this, the weakness of the broad-based US dollar, coupled with hopes of an American stimulus package, also helped the crude oil prices to extend its overnight gains. The increase in the North American Frac Spread Count also exerted a positive impact on the crude oil prices.

On the contrary, the resurgence of the coronavirus, which is leading to further lockdown restrictions on activities, has becoame the key factor that is keeping a lid on any additional gains in the crude oil prices. Furthermore, the fears of a growing supply from the Organization of the Petroleum Exporting Countries (OPEC) also keeps challenging the crude oil gains. Elsewhere, the intensified tussle between the US and China over several issues, and job cuts by American entities like Disney and Goldman Sachs, also seem to be poking at the crude oil bulls. At the moment, crude oil is trading at $ 40.16 and consolidating in the range between 39.91 and 40.45.

As we have already mentioned, the weekly data published by the US Energy Information Administration (EIA) gave an additional boost to the WTI Crude Oil prices. On the data front, the EIA announced that crude oil inventories sank by 2 million barrels in the week ending September 25th, compared to analysts’ estimates of an increase by 1.56 million barrels.

Apart from this, the risk-on market sentiment, witnessed by strong gains in Wall Street’s main indexes, seems to be helping the crude oil prices. At the press time, the S&P 500 Futures surged by 0.25% to 3,360, while the US 10-year Treasury yields also remained positive at around 0.68%. However, the positive tone surrounding the market trading sentiment was being supported by the hopes of further stimulus packages. Not only the American Congress, but the Japanese government too, are ready for another liquidity boost to control the negative economic impacts of the coronavirus (COVID-19). This, in turn, undermined the broad-based US dollar and provided further support to the crude oil prices.

As a result, the broad-based US dollar remained depressed during the Asian session, amid a market risk-on sentiment. On the other hand, the cautious mood of traders, ahead of the US presidential election, also weighed on the US dollar, although, the losses in the US dollar kept the oil prices higher, as the price of oil is inversely related to the price of the US dollar. Meanwhile, the US Dollar Index, which tracks the greenback against a basket of other currencies, has dropped to 93.718.

Moreover, the bullish sentiment surrounding the crude oil prices were further bolstered by the numbers from the big data company, Primary Vision, which suggest that the North American Frac Spread Count, which tracks the fracking completion crews currently finishing off wells, rose to 101 from 12 last week.

On the contrary, the worries about the global economic recovery are still hovering all over the market, amid rising numbers of coronavirus cases. As per the latest report, the coronavirus has infected more than 7.2 million people and killed more than 206,000 in the United States, fueling the demand worries and becoming the key factor that is capping further upside momentum in the crude oil prices.

Furthermore, the gains in the crude oil prices were capped by the growing supply fears from the Organization of the Petroleum Exporting Countries (OPEC). The output increased by 160,000 barrels per day in September, compared to August, as some Libyan installations restarted production and Iran’s exports grew.

Across the ocean, the latest report from the UK, suggesting 7,500 job losses in the UK, due to the Brexit, also poked the oil bulls. Besides this, the on-going talks concerning how close Britain is coming to national lockdowns due to the virus, are an extra burden on the commodity prices.

Looking ahead, the market moves could be restricted, on the back of China’s absence for one full week. But Australia’s AiG Performance Mfg Index and Commonwealth Bank Manufacturing PMI will be key to watch. Furthermore, the traders will keep their eyes on the headlines concerning Brexit, the coronavirus pandemic and the US Presidential Election, which may offer important clues. Good luck!

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