The WTI crude oil managed to extend its overnight gains and take rounds near the $43.55 level. However, the bullish sentiment around the crude oil prices was further boosted after the weekly stocks from the Energy Information Administration (EIA) posted an extra dip of more than -3.694M forecast. Apart from this, the reason for the oil gains could also be associated with the fears of hurricane Laura that is expected to have a speed of 150 miles per hour, which leads to shut down of rigs and refineries in the Gulf of Mexico.
In the meantime, the broad-based U.S. dollar weakness, triggered by the cautious sentiment ahead of U.S. Federal Reserve (Fed) Chair Jerome Powell's speech, also favored the oil bulls and contributed to the oil gains. On the contrary, the renewed tussle between the U.S. and China over the South China Sea could be considered the major factor that undermines the crude oil's bullish sentiment.
TAs well as, the fears of the rising coronavirus cases in Asia and Europe also becomes the key factor that capped further upside momentum in oil. At the moment, the WTI crude oil is currently trading at 43.44 and consolidating in the range between 43.27 - 43.50.
At the data front, the EIA's oil inventory numbers for the week ended on August 21 fell to -4.689 million barrels against -3.694 million barrels of market agreement and -1.632 million barrels of prior. The latest official stockpiles data followed the earlier released figures by the American Petroleum Institute (API), -4.524M against -4.264M prior.
Apart from the upbeat EIA inventory data, Hurricane Laura's fears that thwart oil production in the Gulf of Mexico also favored the oil prices. Laura intensified yesterday into a level 4 storm, and it is still expected to be the largest hurricane to hit the Gulf of Mexico region in 2020. As a result, the U.S. National Hurricane Center warned that the storm would lead-heavy rains and winds of up to 150 miles per hour.
The producers have already shut down 1.56 million per day of crude output in the region earlier in the week and close 310 offshore facilities during this week. A further nine refineries, equaling about 15% of U.S. processing capacity, were also closing ahead of the hurricane.
Despite this, the market traders failed to cheer these fears properly as the oil and product inventories remain high amid the coronavirus pandemic's hit to fuel demand. As well as, the uncertainty over the pace of the global recovery also kept the traders cautious.
On the other hand, the previous optimism over the US-China trade talks overshadowed by the renewed fears of US-China tussle, The tension between both sides was intensified after China fired 4-missiles into the disputed South China Sea on Wednesday. While on the same day, the U.S. imposed sanctions on a further 24 Chinese companies. However, these renewed fears could keep oil prices under pressure.
Also, the negative factor could be the rising cases in Europe and Asia. As per the latest report, the coronavirus cases increased to 236,429, with a total of 9,280 deaths, as per the German disease and epidemic control center, Robert Koch Institute (RKI) report. In the meantime, the cases were raised by 1,576 in Germany on Tuesday against Monday's +1278. Whereas the death toll also increased by 3.
At the USD front, the broad-based U.S. dollar was down on Thursday morning in Asia ahead of U.S. Federal Reserve Chairman Jerome Powell's speech at the Jackson Hole symposium later in the day. Whereas, the losses in the U.S. dollar become the key factor that kept the oil prices supportive as the price of oil is inversely related to the price of the U.S. dollar. Whereas, the U.S. Dollar Index that tracks the greenback against a basket of other currencies dropped by 0.12% to 92.882 by 11:59 PM ET (4:59 AM GMT).
Looking forward, the market traders await the Federal Reserve Chairman Jerome Powell's speech in the Jackson Hole Symposium. As well as, America's preliminary readings of the second quarter (Q2) GDP, which is expected -32.5% versus -32.9% will be key to watch.
Daily Support and Resistance
- S1 40.97
- S2 42.08
- S3 42.77
Pivot Point 43.2
- R1 43.88
- R2 44.31
- R3 45.42
Crude oil continues to trade bullish to trade at 43.42 level, but now it has entered the overbought zone and may drive bearish correction. On the lower side, the WTI crude oil may find immediate support at 43.27 level along with resistance at 43.522. Violation of 43.27 support can extend selling until 38.2% Fibonacci retracement level of 43.12. Good luck!