U.S. West Texas Intermediate crude oil futures are set for a weekly decline due to mounting worries about the impact on fuel demand of a widespread resurgence in coronavirus infections, as well as some concern about the likely return of exports from Libya. The U.S. benchmark is also heading for a monthly loss.
Demand Outlook
U.S. fuel demand remains under pressure as the pandemic constrains travel. The four-week average of gasoline demand last week was 9% below a year earlier, government data showed on Wednesday. Demand is likely to weaken over the near-term because the increasing coronavirus numbers are slowing the economic recovery.
In the United States, which has the highest death toll from the coronavirus pandemic and is the world's biggest oil consumer, unemployment claims unexpectedly rose last week suggesting an economic recovery is sputtering and pushing down fuel demand.
Globally, in other parts of the world, the situation is getting even worse. Daily increases of coronavirus infections are hitting records and new restrictions are being put in place that will likely limit travel and fuel demand.
While most traders are monitoring the situations in Europe and Asia, there are bearish developments in India too. According to reports, throughput by crude oil refiners in August fell 26.4% from a year ago, the most in four months, as fuel demand ebbed because surging coronavirus cases hindered industrial and transport activity.
Global Supply…
U.S. West Texas Intermediate crude oil futures are set for a weekly decline due to mounting worries about the impact on fuel demand of a widespread resurgence in coronavirus infections, as well as some concern about the likely return of exports from Libya. The U.S. benchmark is also heading for a monthly loss.
Demand Outlook
U.S. fuel demand remains under pressure as the pandemic constrains travel. The four-week average of gasoline demand last week was 9% below a year earlier, government data showed on Wednesday. Demand is likely to weaken over the near-term because the increasing coronavirus numbers are slowing the economic recovery.
In the United States, which has the highest death toll from the coronavirus pandemic and is the world's biggest oil consumer, unemployment claims unexpectedly rose last week suggesting an economic recovery is sputtering and pushing down fuel demand.
Globally, in other parts of the world, the situation is getting even worse. Daily increases of coronavirus infections are hitting records and new restrictions are being put in place that will likely limit travel and fuel demand.
While most traders are monitoring the situations in Europe and Asia, there are bearish developments in India too. According to reports, throughput by crude oil refiners in August fell 26.4% from a year ago, the most in four months, as fuel demand ebbed because surging coronavirus cases hindered industrial and transport activity.
Global Supply Issues Remain
Although OPEC+ is doing its best to curtail global supply with its massive production cuts and could do more if called upon, there could be a problem if Libya brings more oil to the market.
In Libya, an oil tanker was loading cargo on Thursday from one of three Libyan terminals that were reopened in recent days and more cargoes are expected to be lifted in the coming days. It may look bearish on the surface, but analysts are questioning how quickly the country could ramp up supply.
U.S. Energy Information Administration Weekly Inventories Report
U.S. crude, gasoline, and distillate inventories all fell last week, EIA data showed. Crude inventories fell by 1.6 million barrels, less than forecast; gasoline stocks dropped more than expected, sliding by 4 million barrels; while distillate stockpiles posted a surprise drawdown of 3.4 million barrels.
The drop in distillates is encouraging because it could be an early indication of renewed demand.
Weekly Technical Analysis
Weekly December WTI Crude Oil
Trend Indicator Analysis
The main trend is up according to the weekly swing chart, however, momentum is trending lower. A trade through $44.33 will signal a resumption of the uptrend. A move through $25.31 will change the main trend to down.
The minor trend is down. This is controlling the momentum. A trade through $37.11 will signal a resumption of the minor trend. A trade through $44.33 will change the minor trend to up and shift momentum to the upside.
The main range is $59.51 to $25.31. Its 50% to 61.80% retracement zone at $42.41 to $46.45 is the major resistance.
The short-term range is $25.31 to $44.33. Its retracement zone at $34.82 to $32.58 is a potential support zone. Since the main trend is up, buyers are likely to come in on the first test of this area.
The minor range is $44.33 to $37.11. Its 50% level at $40.72 is controlling the near-term direction of the futures contract.
Weekly Technical Forecast
Based on this week's price action, the direction of the September WTI crude oil market is likely to be determined by trader reaction to the minor 50% level at $40.72.
Bullish Scenario
A sustained move over $40.72 will indicate the presence of buyers. This could lead to a quick test of the long-term 50% level at $42.41. Overtaking this level will put the market in a position to take out the main top at $44.33. This could trigger an acceleration into the major Fibonacci level at $46.45.
Bearish Scenario
A sustained move under $40.72 will signal the presence of sellers. The first downside target is the minor bottom at $37.11. If this fails then look for the selling to possibly extend into the short-term retracement zone at $34.82 to $32.58.
Short-Term Outlook
Fundamentally, this week showed no major changes. Demand issues are keeping a lid on prices and OPEC+ is providing some support. This suggests a rangebound trade over the near-term as we saw in the July to August timeframe, except at lower price levels.
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