WTI Crude Oil Fails to Stop its Losing Streak and Hits a Five-Month Low!
Arslan Butt • 3 min read
During Friday’s early Asian trading session, the WTI Crude Oil price failed to put a stop to the bearish bias of the past two days, dropping to a five-month low around the $ 35.00 level, as fears of another global rise in coronavirus cases and a surprisingly large weekly build in US crude stockpiles kept the energy market under pressure. Apart from this, the resumption of the Libyan supply and a Norwegian deal could also be considered as major factors that kept the oil prices under pressure.
Across the pond, the lack of progress on an agreement regarding the US coronavirus relief package added further bearish pressure to the crude oil prices. Meanwhile, the worries over the geopolitical tensions between the US and China is keeping the market trading sentiment under pressure, which has a bearish impact on the crude oil prices. The strength of the broad-based US dollar, backed by the risk-off mood on the market, also played a major role in undermining the oil prices, as the price of oil is inversely related to the price of the US dollar. At the moment, crude oil is trading at $ 36.08 and consolidating in the range between 34.93 and 37.77.
The rising number of COVID-19 cases has strengthened lockdown restrictions across Europe, fueling worries about the outlook for economic recovery in the US and globally. As per the latest report, Germany and France have declared new measures to curb the spread of the virus, which in turn is undermining the crude oil demand. Elsewhere, the UK is starting down the same path, while Italy, Spain, Portugal and Poland have also recorded new highs in terms of daily cases.
Moreover, the bearish sentiment surrounding the crude oil prices was further bolstered by the unexpectedly large US crude stockpile build for last week, as reported by the Energy Information Administration on the previous day, which supported concerns about the falling demand for fuel, amid the worsening global spread of COVID-19, which is undermining the sentiment regarding the crude oil prices. On the data front, the crude oil inventories have increased by 4.3 million barrels, versus expectations for an increase of 1.23 million barrels. That comes one week after crude stocks dropped by 1 million barrels. As a result, the crude oil prices plunged by approximately 5% overnight, falling below the key $ 40 per barrel support.
Besides the virus woes, the reason behind the cautious sentiment among investors could also be associated with the long-lasting US-China tussle over the potential sale of American-made missiles to Taiwan, which is continuously picking up pace. On the flip side, the prevalent uncertainty over the result of the US presidential election also dampened the market mood. As per the latest report, the national polls show that Democrat rival Joe Biden has a lead over Republican incumbent President Donald Trump.
On the USD front, the broad-based US dollar managed to maintain its winning streak throughout the previous session, as the traders still prefer the safe-haven assets, due to the current market mood. However, the gains in the US dollar were further bolstered by the stronger-than-expected US GDP data, which cited that the world’s largest economy had expanded at a 33.1% annualized pace during the third quarter of 2020. However, the bullish bias surrounding the US dollar was unaffected by the intensifying political uncertainty, ahead of the upcoming US presidential election on November 3. However, the gains in the US dollar could be short-lived or temporary, due to the worries that the economic recovery in the US could grind to a halt, due to the resurgence of coronavirus cases. Besides this, the gains in the greenback were further boosted by a lack of progress regarding a US stimulus package, which has put traders in a cautious mood. Thus, the gains in the US dollar have become the key factor that is keeping the crude oil prices under pressure, as the price of oil is inversely related to the price of the US dollar. However, the gains in the greenback have kept oil under pressure. Meanwhile, the dollar index, which pits the dollar against a basket of 6 major currencies, stands at 93.955.
Across the pond, the reason for the losses in crude oil could also be associated with the resumption of production in Libya, as the country begins to expand its production/export capacity after a blockade lasting several months.
On the contrary, Saudi Arabia and Russia indicated their willingness to extend their oil production cuts and postpone planned increases when they meet for talks with their OPEC+ partners at the end of November, which might help to limit deeper losses in the oil prices. Looking forward, the market traders will keep their eyes on the USD moves, amid a lack of major data/events on the day. Besides, the risk catalysts, like geopolitics and the virus woes, not to forget the Brexit, will also be key to watch for fresh direction. Good luck!