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WTI Extends Previous Day’s Recovery Rally to Soar Over $ 41.00 – A Fundamental Outlook! 

During Wednesday’s early Asian trading session, the WTI crude oil price extended its largest one-day bullish rally ever. Oil remained well bid at around the mid-$ 41.00 level, as the hopes for a COVID-19 vaccine and Joe Biden’s victory boosted the market trading sentiment and the demand sentiment around crude oil. However, the black gold markets continue to cheer the hopes of a possible vaccine coming out and bringing everything back to normal again. In the meantime, the gains in the crude oil prices were further bolstered after the American Petroleum Institute (API) reported the major draw in crude oil inventories of 5.147 million barrels for the week ending November 6. Apart from this, the bullish sentiment surrounding the black gold was further improved by the latest reports suggesting that OPEC+ is considering delaying the production cut agreement, in an effort to dampen the rising impact of the lockdowns.

The reason for the bullish bias in crude oil prices could also be associated with the Chinese data showing that the inventories had declined considerably in recent weeks, as the domestic economy recovered, which in turn provided a further boost to the sentiment surrounding the global oil demand. Meantime, the bearish bias in the broad-based US dollar was also seen as one of the key factors that kept the crude oil prices higher, as the price of oil is inversely related to the price of the US dollar. Conversely, the intensifying concerns over the escalting COVID-19 pandemic in the US and Europe have become a key factor that is keeping a lid on any additional gains in the crude oil prices. At the moment, WTI Crude Oil is currently trading at 41.80 and consolidating in the range between 39.42 and 41.83.

On the data front, the crude inventory slumped by 5.1 million barrels, against projections for a draw of 900,000 barrels, as per the American Petroleum Institute. It is also worth recalling that the crude inventories dropped by 8 million barrels in the previous week. So, this can be considered as the second big draw in a row.

As we have already mentioned, the market trading sentiment managed to extend its upbeat performance of the previous-day and continued to flash green during the early Asian session on the day. As a result, the market sentiment was being supported by prevalent optimism over a potential vaccine for the highly contagious coronavirus, which ultimately boosted demand sentiment around crude oil. It is worth mentioning that Pfizer’s experimental vaccine – co-developed with BioNTech – was more than 90% efficient in curbing COVID-19 infections. However, the claim was based on data from the first 94 people to be infected with the coronavirus in Pfizer’s large-scale clinical trials.

As a result, the broad-based US dollar failed to gain any positive traction, edging lower on the day as doubts persist over the global economic recovery from COVID-19. Besides this, the risk-on market sentiment, backed by the optimism over a potential vaccine for the highly contagious coronavirus, also played a major role in undermining the safe-haven US dollar. However, the losses in the US dollar have become a key factor that is limiting additional losses in crude oil, as the price of oil is inversely related to the price of the greenback. In the meantime,  at 92.707, the US Dollar Index, which tracks the greenback against a bucket of other currencies, is down.

Across the pond, the reason for the gains in crude oil could also be associated with the latest reports suggesting a sharp improvement in Chinese crude oil imports, which has ultimately lent additional support to the energy market. It is worth recalling that the Chinese inventories declined considerably in recent weeks, as the domestic economy recovered. Apart from this, the bullish sentiment surrounding the black gold was further bolstered by the latest reports suggesting that OPEC+ is considering delaying the production cut agreement, in an effort to reduce the rising impact of the lockdowns.

On the bearish side, the gains in crude oil prices were capped by the on-going doubts over the global economic recovery, in the wake of intensifying coronavirus (COVID-19) worries in the US and Europe. As per the latest report, the incidence of COVID-19 cases is still not showing any sign of slowing down, especially in the US and Europe, resulting in some European countries, such as the UK and France, imposing restrictive measures, such as lockdowns and curfews. On the US front, the county registered its 4th consecutive day of over 100,000 new infections, and surges from California to the Midwest and the Mexican border. Considering the current coronavirus situation in Europe and the US, the International Energy Administration (IEA) Director for Energy Markets and Security said that fresh lockdown measures would lower the global oil demand outlook, which tends to limit its bullish streak.

In the absence of any major data/events on the day, the market traders will keep their eyes on the continuous drama surrounding the US stimulus package. In the meantime, 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!

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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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