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Crude Oil Under Pressure Despite Upbeat EIA Figures – What’s Next? 

During Thursday’s early Asian trading session, the WTI Crude Oil prices failed to stall their declines of the previous day. They took some additional offers around the $ 40.00 level, due to the renewed lockdown measures to control the second wave of coronavirus infections, which eventually fueled concerns over the slower recovery in the fuel demand and dragged the crude oil prices lower.

In addition to this, the latest build-up in the US inventory fueled concerns about an oversupply, and exerted some additional pressure on crude oil prices. Apart from this, the resumption of Libyan production and related fears also played a major role in undermining crude oil prices. Moreover, the losses in crude were further bolstered by the uncertainty over whether OPEC and its allies will move forward with their plans to put an additional 2 million barrels a day into the market, beginning in January.

On the contrary, the Energy Information Administration reported a crude oil inventory slump of 1 million barrels for the week ending October 16, which could be considered one of the key factors that has helped to limit deeper losses in the crude oil prices. At the same time, the weakness of the broad-based US dollar, tried by the market risk-on mood, has also become the key factor that is keeping a lid on in the crude oil prices, as the price of oil is inversely related to the price of the US dollar. Besides this, the latest optimism over the next round of the American fiscal stimulus package has boosted investor confidence, and this has also helped to cap any deeper declines in the crude oil prices. At the moment, WTI Crude Oil is trading at 40.03, and consolidating in the range between 39.78 and 41.59.

As we have already mentioned, the crude oil prices were unaffected by the upbeat EIA inventories data, which reported a crude oil inventory drop of 1 million barrels for the week ending October 16. Details suggest that “the EIA inventory estimate compares with a draw of 3.8 million barrels reported for the previous week and analyst expectations for an inventory decline of 240,000 barrels.” However, this data came a day after the American Petroleum Institute undermined crude oil prices by reporting an unexpected build in inventories.

It is worth recalling that the API had reported a 584,000-barrel build in the week ending October 16, versus the forecast of the 1.9-million-barrel draw, and the previous week’s draw of 5.422 million barrels, which in turn, fueled the concerns about the oversupply at a time when the number of coronavirus cases is rising globally, which could halt a recovery in fuel demand.

Moreover, the reason for the bearish bias surrounding the crude oil prices could also be associated with the renewed lockdown restrictions in an attempt to stop the second wave of the coronavirus, which ultimately fueled concerns over the slower recovery in fuel demand and undermined the oil prices. As per the latest report of Johns Hopkins University data, there were approximately 40.7 million coronavirus cases globally as of October 21. However, Spain is set to announce a state of emergency, while the United Kingdom also failed to get positive vibes from the “Three Tier” lockdowns, as the numbers of COVID-19 cases globally is in excess of 40 million. Other than that, the latest reports suggesting that the resumption of Libyan production, which is going to pump even more oil into an already saturated market, are also keeping the oil prices under pressure.

Elsewhere, the gains in crude oil were capped by OPEC +’s proposal to ease production cuts in January, from the current reduction of 7.7 million barrels per day (BPD) to roughly 5.7 million BPD, which is raising fears of an oversupply and contributing to the declines in the oil prices.

On the contrary, the latest optimism over the next round of the US fiscal stimulus package kept the market trading sentiment optimistic, which dented the greenback’s safe-haven status and helped to limit deeper losses in the crude oil prices. However, these hopes were fueled after the White House chief of staff Mark Meadows announced that House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin had made good progress in their stimulus talks. Apart from this, the White House spokesperson Allysa Farah also hinted that she is “still optimistic about reaching a fiscal stimulus deal.”

Across the ocean, investors are gaining momentum from the progress of Brexit talks between the UK and the European Union (EU). These hopes were fueled after each side asked the other to compromise, in order to save the fast-deteriorating negotiations.

As a result, the broad-based US dollar failed to stop its declining streak of the previous day, remaining depressed on the day, amid the risk-on market sentiment. Moreover, the losses in the greenback could also be associated with the on-going optimism that US Congress will pass the latest stimulus measures before the presidential election on November 3, which tends to undermine the safe-haven US dollar. However, the losses in the USD 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 92.597.

In the absence of any major data/events on the day, market traders will keep their eyes on the movement of the USD and coronavirus headlines, which could play a key role in the crude oil prices. Good luck!

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Arslan Butt
Index & Commodity Analyst
Arslan Butt serves as the Lead Commodities and Indices Analyst, bringing a wealth of expertise to the field. With an MBA in Behavioral Finance and active progress towards a Ph.D., Arslan possesses a deep understanding of market dynamics.His professional journey includes a significant role as a senior analyst at a leading brokerage firm, complementing his extensive experience as a market analyst and day trader. Adept in educating others, Arslan has a commendable track record as an instructor and public speaker.His incisive analyses, particularly within the realms of cryptocurrency and forex markets, are showcased across esteemed financial publications such as ForexCrunch, InsideBitcoins, and EconomyWatch, solidifying his reputation in the financial community.
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