WTI Choppy Session Continues – Quick Update on Fundamentals!
Arslan Butt • 3 min read
During Tuesday’s Asian trading session, the WTI crude oil prices failed to extend the gains of the previous day, dropping to the $ 40.80 level, mainly due to China’s GDP having grown less than expected in the third quarter (Q3), fueling concerns over the demand for crude oil from the world’s second-largest oil consumer. This, in turn, undermined the sentiment surrounding the crude oil prices. The concerns over the sharp rise in new coronavirus cases, which could trigger renewed lockdown restrictions and damage the global economy’s ongoing recovery, continued challenging the crude oil bulls. Meanwhile, the prevalent doubtful story that is currently circulating in the market, concerning a no-deal Brexit, coupled with the ongoing US-China tensions, also exerted downside pressure on the crude oil prices.
On the contrary, the losses in the crude oil prices were capped by the latest reports suggesting that OPEC+, which includes top producers Saudi Arabia and Russia, hinted that they may need to delay the increase in production that they were expecting to implement at the start of 2021. In the meantime, the prevalent weakness of the US dollar has turned out to be a major factor that is helping to limit deeper losses in the oil prices, as the price of oil is inversely related to the price of the US dollar. Crude oil is trading at $ 41.06 and consolidating in the range between 40.80 and 41.44.
As we have already mentioned, the Chinese economy grew less than expected in Q3, which eventually triggered concerns over the oil demand from the world’s second largest oil consumer. On the data front, China’s 3rd-quarter GDP report came in, indicating that economic growth stood at 4.9%, versus the expected 5.2%. On the bullish side, the upbeat Retail Sales and Industrial Production figures recorded a growth of 3.3% and 6.9%, respectively, in September.
However, the market trading sentiment failed to extend its bullish bias of the previous day, remaining depressed on the day. The reason for this could be attributed to the prevalent concerns over the sharp rise in the number of new coronavirus cases, which could trigger renewed lockdown measures and hurt the ongoing recovery of the global economy. Furthermore, UK PM Boris Johnson’s willingness to accept a no-deal Brexit, and the record number of coronavirus infections in Europe, also exerted downside pressure on the market trading sentiment.
Moreover, the market trading sentiment was further pressured by China passing a law to restrict controlled exports, preceding Taiwan’s attempt to tighten technology transfer rules to Beijing-based companies, which has put optimism on shaky ground.
Despite the rising number of COVID-19 cases, the broad-based US dollar failed to put any haven bids, remaining depressed on the day, possibly due to the renewed hopes of additional US fiscal stimulus measures and optimism that a coronavirus vaccine will be available by the end of this year. This has undermined the safe-haven US dollar. Elsewhere, the losses in the greenback were further bolstered by the doubts over economic recovery in the US. Thus, the losses in the US dollar have become the key factor that is helping to limit deeper losses in the oil prices, 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 by 0.04%, to 93.672.
On the bullish side, US President Donald Trump recently managed to convince the market with his statement that he is not the reason for the suspension of the much-awaited stimulus package. In the meantime, the US President has said that he wants an even bigger stimulus deal than House Speaker Nancy Pelosi. Earlier, Democrat Pelosi gave the deadline of Tuesday night for the White House to conclude the coronavirus (COVID-19) stimulus discussions. This provided a boost to the market trading sentiment and benefitted the crude oil prices.
During the meeting of ministers from the Organization of Petroleum Exporting Countries and their most prominent allies, Russian Energy Minister Alexander Novak and his Saudi Arabian counterpart Prince Abdulaziz bin Salman both warned of an uncertain period ahead. They stressed the need for the group’s output policy to remain flexible, in order to support prices. These positive headlines could be considered as the key factor that is helping to limit deeper losses in the oil prices.
In the absence of any major data/events on the day, the market traders will keep their eyes on Housing Starts and Building Permits data. Meanwhile, the movement of the USD and coronavirus headlines will also play a key role in crude oil. Good luck!