WTI Depressed Below the $ 42.00 Mark, Amid a Combination of Factors – A Fundamental Outlook!
The WTI crude oil price failed to snap its bearish run-up of the previous day. Prices remained bearish, at around the 42.00 level, amid the growing coronavirus restrictions, which are threatening the outlook on the near-term fuel demand and contributing to the losses in crude. Across the pond, another reason for the heavy losses in crude oil prices could also be attributed to the latest reports of the recent surge in Libyan oil production, which now exceeds 1.25 million barrels a day, according to the state-run National Oil Corp. Meanwhile, the drop in crude oil prices was further bolstered after US Treasury Secretary Steven Mnuchin asked the Fed to end the emergency funding program. The intensified worries over the recovery of the US labor market, triggered by reports suggesting that US jobless claims had increased for the first time in five weeks, also played a major role in undermining the oil prices.
On the contrary, the weakness of the broad-based US dollar has turned out to be one of the major factors 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. Moreover, the losses in crude were also capped by the optimism over the coronavirus vaccine, which has somewhat restored expectations for a steady rebound in the global energy demand. At the moment, crude oil is trading at $ 41.86, and consolidating in the range between 41.62 and 42.02.
However, the concerns over the second wave of the coronavirus, which has resulted in lockdown restrictions throughout the US and Europe, are posing a major threat to any recovery in the demand for crude. The pandemic is getting worse by the day, all over the world, which has raised concerns over global economic recovery. As per the latest report, there are approximately 56 million cases worldwide and there have been 1.36 million deaths internationally, with one-fifth of both totals in the US alone. As a result, California has announced a ban on all indoor social functions and non-essential activities outside the home across most of the state, in an effort to curb the alarming surge in coronavirus infections. Europe has also imposed back to back lockdown restrictions, which is also posing a threat to the oil outlook and undermining the oil prices. This turned the market sentiment sour on the day.
Besides the virus woes, another reason for the bearish crude oil prices could be associated with the long-lasting US-China tussle, which was fueled further after the US, the UK and Australia urged the Asian major to respect international commitments, and appealed to the Dragon Nation to stop threatening the peoples of Hong Kong. The resumption of Libyan oil production also keeps fueling the oversupply concerns, and this is playing a leading role in weakening crude oil prices. As per the latest state-run National Oil Corp report, Libyan oil production now exceeds 1.25 million barrels per day.
Apart from this, the declines in the crude oil prices were further bolstered after Treasury Secretary Steven Mnuchin asked for $ 455 billion of the current US stimulus package to be returned to the US Treasury; these funds were proposed for general lending to local businesses, government and non-profit organisations. It is worth recalling that the lending program has played an important role in protecting the country from the economic recession caused by the COVID-19 pandemic. Now, the possible loss of the program is fueling fears of an even greater fall in demand, which might put further pressure on the crude oil prices.
Despite the risk-off market mood, the broad-based US dollar failed to stop its overnight losses and remained depressed on the day, mainly due to the mixed US Stimulus News. The doubts over economic recovery in the US, in the wake of a resurgence of the coronavirus, is also weighing on the US dollar. Thus, the losses in the greenback could also be a key factor that has kept the oil prices higher, as the price of oil is inversely related to the price of the US dollar. Meanwhile, the dollar index remains unchanged at 92.306 (=USD), off Thursday’s low of 92.236, although, overall, it is still down by 0.3% for the week.
In the absence of any major data/events on the day, the market traders will keep their eyes on the ongoing drama surrounding the US stimulus package. In the meantime, the usual risk catalysts, like geopolitics and the virus woes, and, of course, the Brexit, will also be key to watch for fresh direction. Good luck!
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