WTI Crude Oil Extends its Bearish Bias, Amid Pandemic and Supply Concerns!

Posted Tuesday, December 8, 2020 by
Arslan Butt • 3 min read

During Tuesday’s Asian trading session, the WTI crude oil prices failed to stop their losing streak of the previous day, remained depressed around the $ 45.50 level, as the impact of renewed lockdowns and uncertainty about the long-term outlook of production cuts by the Organization of the Petroleum Exporting Countries and its allies (OPEC+), fuels fears of oversupply and contributes to losses in crude. It is worth recalling that the crude oil prices recovered last week, after positive developments concerning vaccines for the coronavirus (COVID-19), but the gains were short-lived or temporary as the news of record-highs in COVID-19 cases in the US increased fears that demand could plunge in the short term.

Apart from this, the heavy losses in crude oil prices could also be attributed to the latest reports suggesting that Iran is considering boosting production within 3 months. Furthermore, the losses in the crude oil prices were further bolstered after a fresh failure in Brexit talks between the UK and the European Union. Across the pond, the US is ready to impose fresh sanctions on more than a dozen Chinese officials, due to their actions in Hong Kong, and this could hurt the trade deal between the two countries. This, in turn, exerted downside pressure on the crude oil prices. At the moment, crude oil is trading at $ 45.45 and consolidating in the range between 45.27 and 45.73. Moving on, the traders seem cautious to place any strong positions ahead of crude oil supply data from the American Petroleum Institute, which is due later in the day.

As we already mentioned, the on-going concerns regarding the second wave of the coronavirus, which have led to renewed lockdown measures worldwide, continue to threaten a recovery in the crude oil demand. As we all know, the coronavirus (COVID-19) is taking a major toll on the US. As per the latest report, the resurgence of the coronavirus in Europe and the US is still not showing any signs of slowing down, which keeps fueling doubts over economic recovery, as the authorities in the US and Europe keep announcing back to back restrictions on activities, in an effort to curb the spread of the virus. This, in turn, exerted downside pressure on the market risk tone and contributed to the losses in crude oil.

The reason for the bearish crude oil prices could also be associated with the long-lasting US-China tussle, which picked up pace once again after the US imposed fresh sanctions on diplomats from Beijing. In the meantime, the Hong Kong police have arrested more opposition party members, which further fueled the already intense tussle and weighed on the risk tone.

Elsewhere, the Brexit issue remains on the cards, amid a fresh breakdown in Brexit talks between the UK and the Eurozone, which has kept the market players on edge. However, these negative headlines also played a major role in undermining the crude oil prices. Across the ocean, the declines in crude were further bolstered by reports suggesting that Iran is set to boost production within 3 months.

However, the market trading sentiment has been flashing red signals since the day started. As a result, the reason for the mixed trading could be attributed to the mixed signals concerning the coronavirus (COVID-19) and the latest chatter concerning the US-China tussle. Therefore, the broad-based US dollar managed to gain some positive traction, edging higher on the day. The bullish bias in the US dollar was rather unaffected by the worsening coronavirus (COVID-19) conditions in the US, and the progress regarding the stimulus talks, both of which which tend to undermine the US currency. However, the gains in the greenback have become a key factor that has kept the crude oil prices under pressure, 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 bucket of other currencies, has risen to 90.838.

Conversely, the losses in the crude oil prices might be capped by the rapid recovery in demand in China, as witnessed after China’s exports for November rose at the fastest pace since February 2018. This eventually boosted the hopes of a strong global demand. Across the pond, the optimism over treatment possibilities for the highly dangerous coronavirus has become a key factor that has helped to limit deeper losses in the crude oil prices.

In the absence of any key data/events on the day, the market traders will keep their eyes on the crude oil supply data from the American Petroleum Institute, which is due later today. In addition to this, the updates about the US stimulus package will also be key to watch. In the meantime, the risk catalysts, like geopolitics and the virus woes, not to forget the Brexit, will not lose any importance. Good luck!

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