WTI Fails to Stop Overnight Declines, Dropping by About 4% – Quick Fundamental Outlook!  - Forex News by FX Leaders

WTI Fails to Stop Overnight Declines, Dropping by About 4% – Quick Fundamental Outlook!

Posted Friday, October 2, 2020 by
Arslan Butt • 3 min read

During Friday’s Asian trading session, the WTI crude oil prices failed to stop their overnight declining streak, drawing further offers just above $ 38.00, as increasing numbers of coronavirus cases around the world dampened the fuel demand. This is keeping the oil prices under pressure. Furthermore, the rise in OPEC output last month also weighed on crude oil prices, and the market risk-off sentiment, triggered by the latest headlines surrounding US President Donald Trump’s infection with the coronavirus (COVID-19), is also keeping oil investors cautious. Moreover, reports suggesting the US policymakers’ failure to break the deadlock over the COVID-19 stimulus talks further bolstered the risk-off market sentiment, which also exerted downside pressure on crude oil prices.

Apart from this, the resumption of Libyan oil production added an extra burden on the commodity prices. Elsewhere, the tussle between the US and China is also prompting concerns about the impact on the demand for fuel. Meanwhile, the prevalent bullish bias in the broad-based US dollar, backed by the risk-off market mood, also played a role in undermining the oil prices. At the moment, crude oil is trading at $ 37.93, and consolidating between 37.87 and 38.66.

It is worth mentioning that Libya’s oil output has grown faster than expected, after the relaxation of a blockade by the Libyan National Army, which tried to take control of the capital city, Tripoli. The troops are mainly based in the eastern part of the country, where many crude oil plants are located. Details suggest that crude production from Libya has increased to 270,000 BPD, as the country has accelerated its export activity, which keeps raising the crude supplies, contributing to the crude oil losses.

However, the worries about the global economic recovery are still hovering all over the market, amid the worsening COVID-19 outbreak, which keeps fueling fears of more restrictions on movement and consumption, that are likely to knock the demand for fuel. As per the latest report, the global death toll has crossed the 1 million mark, and the world is becoming a gloomy place once again. On the US front, the pandemic has infected more than 7.2 million people and killed more than 206,000. Meanwhile, Europe’s worst COVID-19 center, Madrid, is considering fresh lockdown restrictions in the coming days, and the mayor of Moscow has ordered companies to send at least 30% of their staff home. Many European countries are reporting record numbers of new infections. All of this is exerting downside pressure on the market risk tone, and contributing to the losses in crude oil prices. Furthermore, the chatter surrounding US President Donald Trump having been infected with the coronavirus (COVID-19) could also be weighing on the market trading sentiment. As per President Trump, both he and his wife will go into quarantine after a close aide tested positive for the coronavirus.

Elsewhere, the risk-off market sentiment was further bolstered by the on-going uncertainty over the failure of American policymakers to break the deadlock over the COVID-19 stimulus talks. As we are all well aware, the passing of the Democrats’ $ 2.2 trillion COVID-19 bills by the House, was largely expected and it didn’t get any accolades. The key issue is to get the bill passed by the Senate, where the Republicans hold the reins.

As a result, the broad-based US dollar succeeded in stopping its losses of the previous day, taking fresh safe-haven bids on the day, amid a market risk-off sentiment. However, the gains in the greenback could be short-lived or temporary, due to the prevalent worries that the economic recovery in the US could grind to a halt because of the resurgence of coronavirus cases and US post-election uncertainty, which could be bad for both the US and the global economy. However, the gains in the US dollar kept the oil prices under pressure, 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, rose to 93.907.

Across the pond, the reason for the losses in crude oil could also be associated with the reports suggesting a rise in the OPEC output last month. However, the rising oil supply from the Organization of the Petroleum Exporting Countries (OPEC) keeps weighing on the energy market, with the output in September up 160,000 barrels per day (BPD) from August, according to a Reuters survey. Looking forward, traders will keep their eyes on the continuous drama surrounding the US elections and updates about the US stimulus package. Meanwhile, the US employment data for September will be key to watch on the day. Good luck!

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About the author

Arslan Butt // Index & Commodity Analyst
Arslan Butt is our Lead Commodities and Indices Analyst. Arslan is a professional market analyst and day trader. He holds an MBA in Behavioral Finance and is working towards his Ph.D. Before joining FX Leaders Arslan served as a senior analyst in a major brokerage firm. Arslan is also an experienced instructor and public speaker.
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