The WTI crude oil prices could not stop its early-day bearish bias and remain depressed around $40.00 level, mainly due to the recent increase in the Organization of the Petroleum Exporting Countries (OPEC) production made by Saudi Arabia, which kept the traders cautious and contributed to the oil losses. The risk-off market sentiment, backed by broad fears of the coronavirus (COVID-19), also favored the crude oil bears and kept the prices under pressure. Whereas, the broad-based U.S. dollar weakness in the wake of the U.S. coronavirus crisis, became the key factor that capped the further losses in the crude oil prices. The geopolitical stresses between the world's two biggest economies also weighed on the risk sentiment and contributed to the oil losses.
For now, crude oil is trading at $40.73 and consolidating in the range between 40.58 - 40.84. However, the crude oil traders seemed cautious to place any strong position ahead of the weekly release of private stockpile data from the American Petroleum Institute (API) for fresh impetus.
As we already mentioned, the producers in the Organization of the Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+, increased the production this month by 900,000 barrels a day last month's figure, to 23.43 million a day. That was due to Saudi Arabia, Kuwait, and the United Arab Emirates restoring additional production that was cut in June. However, this production hike continued to weigh on oil prices.
It is worth recalling that the crude oil prices failed to maintain its previous day gains, supported by the better-than-expected data on manufacturing activity in Asia, the United States, and Europe, which showed that the factories were recovering from the worst of the early coronavirus pandemic impact.
At the US-China front, the rising tensions between the United States and China continued to pace. It is worth recalling that President Trump announced yesterday that TikTok has to find a new buyer within one-month or it will be banned in the U.S. Afterward, the Secretary of State Mike Pompeo also followed Trump's footsteps while considering to impose restrictions against Chinese software companies that were providing data directly to the Chinese government. This tit-for-tat response from both nations could be headed for a total breakdown of relations. As in result, most of the analysts expect that these intensifying tensions will also damage the trade agreement that exists between the two countries.
On the other hand, the fiscal package's lack of progress also weighed on the risk-tone and contributed to the oil losses. Notably, the United States policymakers failed once again to agree over the much-awaited fiscal package despite difficult talks during the weekend as the Democrats and Republicans still have differences over the size of the package. The Democrats are willing to offer $3.5 trillion help, while Republicans are not supporting anything more than $1.0 trillion.
Whereas, the losses in the equity market were further bolstered by the fears of rising COVID-19 cases in the U.S., Australia, Japan, and some of the notable Asian nations like India, which fueled worries that the economic recovery could be stopped in the wake of the resurgence in coronavirus cases. As per the latest report, Victoria is still in pressure despite the latest easing in new cases, from +670 to 429. In contrast, the U.S. cases report almost 60,000 a day off-late. Elsewhere, China, Tokyo, and India are some of the countries that are also facing a crisis over the pandemic.
Consequently, the World Health Organization (WHO) President Dr. Tedros Adhanom Ghebreyesus recently warned that the pandemic's perfect vaccine might never be found. This news also weighed on oil prices.
At the USD front, the broad-based U.S. dollar failed to maintain its early-day mild gains and reported losses on the day as the United States still faced virus woes and struggled to control a spike in coronavirus cases, which eventually destroyed hopes for a quick economic recovery, witnessed by the Job losses in the U.S. manufacturing sector. However, the U.S. dollar losses helped the oil prices stay higher as the price of oil is inversely correlated to the price of the U.S. dollar. Whereas, the U.S. Dollar Index that tracks the greenback against a basket of other currencies stood at % 93.498.
Apart from economic uncertainties, the news came from the unknown resource,and It suggested that Russia's production declined by 16% in July but failed to grab any major attention, at least for now. The reason could be associated with the Russian Energy Ministry data that suggested a daily average output of 9.37 million barrels in July versus 9.32 million barrels in June, as per the Reuters reports.
Looking ahead, the market players will keep their eyes on the weekly release of private stockpile data from the American Petroleum Institute (API) for fresh impetus. However, any further drop in the API Weekly Crude Oil Stock, for the period ending on July 31, will likely support the energy benchmark to break the $41.00 level. Elsewhere, the updates concerning the U.S. fiscal package discussions can also provide fresh direction to the oil traders.
Daily Support and Resistance
S1 37.41
S2 39.04
S3 39.98
Pivot Point 40.67
R1 41.61
R2 42.3
R3 43.93
The WTI crude oil is trading bearish at 40.26; after violating the resistance becomes a support level of 40.45 level. Closing of candle below this level also suggests odds of further selling in oil that can lead to 39.58 level prices. The RSI is holding at 45, below 50, suggesting selling bias among traders. At the same time, the WTI prices have also crossed below the 50 periods EMA which also suggests odds of further selling in the crude oil. Let's consider taking selling trades below 40.46 level today and buying over 39.65. Good luck!