Crude Oil Continues to Hold Below Triple Top – Brace for Selling!
Arslan Butt • 3 min read
WTI Crude Oil managed to extend its overnight gains, and it remained bullish just above the $ 41.00 level. However, the prevalent bullish sentiment surrounding the crude oil prices was triggered after the American Petroleum Institute (API) reported the larger-than-expected draw in the US crude oil supply, which eventually underpinned the crude oil prices. Apart from this, the gains in the crude oil prices were further bolstered by the news suggesting that the members of the Organization of the Petroleum Exporting Countries (OPEC) were in full agreement with the output curbs pledged in September.
In the meantime, the crude oil prices were also supported by a sharp improvement in Chinese crude oil imports and purchases by Indian refineries during September, ahead of festivals in both countries, which lent support to the energy market and contributed to the crude oil gains. On the contrary, the strength of the broad-based US dollar, backed by the market risk-off mood, has become the key factor that has kept a lid on any additional gains in the crude oil prices.
Let me remind you that the stronger US dollar tends to undermine all dollar-denominated commodities, as the price of oil is inversely related to the price of the US dollar. Moreover, the intensifying fears that no US stimulus package will be released ahead of the US presidential election, coupled with the worsening coronavirus (COVID-19) conditions in Europe, could also be considered a key factor that is capping any further upside momentum in crude oil. WTI Crude Oil is currently trading at 40.93 and consolidating in a range between 40.84 and 41.31.
On the data front, the American Petroleum Institute (API) reported a 5.422 million-barrel draw in WTI Crude Oil for the week ending October 9. However, the latest draw is much larger than both the projected 2.3 million-barrel draw and the 951,000-barrel build reported during the previous week. Meanwhile, the API also reported draws in US gasoline and distillate inventories.
Apart from the upbeat API inventory data, the gains in crude oil prices were further bolstered by news suggesting that the Petroleum Exporting Countries (OPEC) members were in full agreement regarding their pledged output curbs in September. As per the latest report, the OPEC+ countries are teasing an alleged 102% compliance to agreed production curbs in September, ahead of the body’s joint technical committee meeting later in the day. It is worth mentioning that the joint ministerial monitoring committee is scheduled to meet in a few days, on October 18.
Across the pond, the reason for the crude oil gains could also be associated with the latest reports suggesting a sharp improvement in Chinese crude oil imports and purchases by Indian refineries in September, ahead of big festivals in both countries, which has ultimately lent support to the energy market. One Chinese mega-refinery is buying up barrels of Middle Eastern crude. At the same time, India’s refineries have increased processing to meet the higher consumption during the festive period. As a result, the signs of improving demand in Asia are helping the overall outlook for crude oil consumption, which has been damaged by the coronavirus pandemic.
However, the market trading sentiment is under pressure, due to the fears that no US stimulus package will be released ahead of the US presidential election. Moreover, the losses in the S&P 500 Futures were further bolstered by the intensifying coronavirus (COVID-19) conditions in Europe, coupled with pauses in the (COVID-19) virus vaccine trials. In the meantime, the on-going Brexit woes and downbeat US inflation data also exerted downside pressure on the market trading sentiment, which underpinned the demand for traditional safe-haven assets, including the US dollar.
As a result, the broad-based US dollar managed to keep its gains throughout the Asian session, as the traders were still cheering the risk-off marker mood. However, the gains in the US dollar seem rather unaffected by the intensifying political uncertainty, ahead of the upcoming US presidential election on November 3. However, the incoming polls tend to suggest a clear-cut presidential victory for the Democrat candidate Joe Biden, which might cap further upside momentum for the US dollar. However, the gains for the greenback have become the key factor that is keeping a lid on any additional gains in the crude oil prices, as the oil price is inversely related to the price of the US dollar. At the same time, by 9:58 PM ET (1:58 AM GMT), the US Dollar Index, which tracks the greenback against a basket of other currencies, had inched up by 0.02%, to 93.398 .
Looking forward, the traders will keep their eyes on the weekly US Initial Jobless Claims, which are expected to come in at 825K, versus the previous 840K. In the meantime, the US Energy Administration (EIA) data, which is due later in the day, will also be key to watch. Apart from this, the continuous drama surrounding the US-China relations and updates about the US stimulus package will not lose any significance. Good luck!