WTI Fails to extend its Bullish Bias of the Previous Day – A Combination of Factors in Play!

Posted Friday, November 6, 2020 by
Arslan Butt • 3 min read

During Friday’s early Asian trading session, the WTI Crude Oil prices failed to extend the recovery rally of the previous day, remaining depressed below the $ 38.50 level, mainly due to the continued rise in COVID-19 cases across Europe and the US, which fueled fears of a slump in demand, due to the imposition of new restrictions on economic and social activities. Apart from this, the heavy losses in the crude oil prices could also be attributed to the cautious sentiment surrounding the 2020 elections in the US, as they are not close to any decision yet.

This is because of President Donald Trump’s lawsuits against multiple states, which is resulting in increased political uncertainly in the United States. Meanwhile, the bearish sentiment surrounding the crude oil prices was further bolstered after the Federal Reserve left rates unchanged, stating that the pace of recovery has declined. Thus, the political uncertainty in America and the dovish comments by Federal Reserve Chairman Jerome Powell also weighed on the crude oil prices. On the contrary, the larger-than-expected decline in US crude oil supplies reported by the Energy Information Administration (EIA) could be considered one of the key factors helping to limit deeper losses in the crude oil prices. At the moment, crude oil is trading at $ 38.17, and consolidating in the range between 38.03 and 38.59.

As we have already mentioned, the intensifying market concerns over the continuous surge in new coronavirus cases in Europe and the United States keeps fueling doubts over global economic recovery, due to the implementation of new restrictions on economic and social activities, which has sparked fears of further drops in demand and undermined the crude oil prices. As per the latest report, there were 109,000 new COVID-19 cases in the US yesterday. Thus, these figures marked the second day in a row with over 100,000 new cases, after Wednesday’s daily record was beaten.

Across the ocean, the hostile US presidential election has damaged hopes for a large stimulus to support the economy, as investors speculate that Democrat Joe Biden will be the next president. However, as it appears that the Republicans will retain the control of the Senate, it will be difficult for the Democrats to pass larger fiscal spending measures. This, in turn, weighed on the investor sentiment, which was evident from a fresh leg down in the equity markets, underpinning the safe-haven US dollar.

On the USD front, the broad-based US dollar succeeded in stopping its overnight losing streak, taking some fresh bids on the day, amid a risk-off market sentiment. However, the gains in the US dollar could be short-lived or temporary, amid downbeat comments from Fed Chair Jerome Powell. On the other hand, the gains for the greenback were also capped by the prevalent worries over the economic recovery of the US, amid the resurgence of coronavirus cases, which could be bad for both the US and global economies. However, the gains in the US dollar kept the oil prices under pressure, as the price of oil is inversely related to the price of the greenback. At the same time, the US Dollar Index, which tracks the greenback against a basket of other currencies, has recovered to 92.698.Besides this, the reason for the crude oil losses could also be associated with the delays in the release of the result of the US presidential election, which is keeping investors confused about whether Trump gets to stay in office another four years, or whether he will be replaced by Biden. As per the latest report, Biden is still leading in Arizona and Pennsylvania, while voters in Georgia love President Trump, even though the difference is small. Apart from this, the on-going uncertainty could also be associated with the latest reports suggesting that the special counsel will investigate Trump’s campaign, and rumors suggesting a delay in the US election results until January are adding a further burden in terms of the equity market. Anyhow, Biden is very close to the 270 required electoral votes, and this  keeps fueling the hopes of further stimulus packages.

On the contrary, the larger-than-expected decline in US crude oil supplies reported by the Energy Information Administration (EIA) could be considered one of the key factors that is helping to limit deeper losses in crude. It is worth recalling that the WTI Crude Oil inventories dropped by 7.99 million barrels, against expectations for a build of 890,000 barrels, as per the Energy Information Administration report.

Moving ahead, the market traders will keep their eyes on the American employment numbers for October, USD price dynamics and coronavirus headlines, which could all give fresh direction for the crude oil prices. In the meantime, the updates surrounding the US elections will not lose any significance on the day. Good luck!

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