Crude Oil Puts a Stop to Friday’s Strong Declines – Risk-On Sentiment in play!

Posted Monday, October 5, 2020 by
Arslan Butt • 3 min read

Today in the Asian trading session, the WTI crude oil prices put a stop to the bearish bias of the previous week, rising approximately 2% on the day, while taking a bid above the $ 38.00 level. Let me remind you that the crude oil prices dropped to the lowest level since September 09 on Friday, but stepped back from closing below an ascending trend line, connecting the lows marked in mid-June and early September. However, the prevalent bullish sentiment surrounding the crude oil prices was triggered after President Donald Trump’s doctors gave an upbeat assessment of his health, which instantly boosted the market trading sentiment and undermined the haven demand for the greenback.

This, in turn, boosted crude oil prices, as the price of oil is inversely related to the price of the US dollar. Apart from this, the fresh hopes over the soft Brexit from the weekend meeting between UK PM Boris Johnson and EU Commission President Ursula von der Leyen, also positively impacted the market sentiment, lending some support to the crude oil prices. Furthermore, the crude oil price sentiment was further bolstered by the reports that indicate an escalation in the workers’ strike in Norway, which could bolster the country’s production capacity. On the contrary, the fears of fresh lockdown restrictions in the UK and Europe, in the wake of the resurgence of the coronavirus, have become the key factor that is keeping a lid on any additional gains in the crude oil prices. WTI Crude Oil is currently trading at 38.02 and consolidating in the range between 37.02 and 38.05.

As we all know, the equity market managed to put a stop its downbeat performance of Friday, and it started to flash green on the day. However, America’s latest updates suggest that President Trump is recovering from the virus infection, and there are no signs of imminent danger to his life. This was witnessed after the Republican leader tweeted a video of himself, thanking well-wishers, before being transferred to Walter Reed Military Hospital. This, in turn, boosted the market trading sentiment and undermined the anti-risk greenback. Apart from this, the latest reports suggest that the national leader spoke to US Treasury Secretary Steven Mnuchin over the weekend, regarding the COVID-19 stimulus package, which raised hopes that the deadlock could end sooner. This also favored the risk-tone sentiment and contributed to the gains in the oil price.

Across the pond, the weekend meeting between the UK PM Boris Johnson and EU Commission President Ursula von der Leyen offered fresh hopes of a soft Brexit, which also positively impacted the market trading sentiment. As a result, the S&P 500 futures rose more than 0.6% on the day, which tends to undermine the demand for the safe-haven US dollar. On the USD front, the broad-based US dollar failed to erase its early-day losses, and still reported losses on the day, mainly due to the marker risk-on tone. Apart from this, the resurgence of coronavirus cases in the US fueled fears that the economic recovery could grind to a halt, which is also keeping the greenback under pressure. However, the losses in the US dollar could be considered the major factor that kept the oil prices higher, as the price of oil is inversely related to the price of the US dollar. Meanwhike, by 10:12 PM ET (2:12 AM GMT), the US Dollar Index Futures, which tracks the greenback against a basket of other currencies, had dropped by 0.13%, to 93.787.

On the contrary, the bullish sentiment surrounding the crude oil prices seems rather unaffected by the absence of Chinese players and a light calendar. Looking forward, the market traders are keeping their eyes on the news concerning the American President’s health. Apart from this, the US ISM Services PMI for September, which is expected to come in at 56.0, will be key to watch. In the meantime, the updates surrounding the fresh Sino-US tussle and coronavirus woes, have not lost any significance. Good luck!

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