Crude Oil Price Update – Erases Earlier Gains as U.S. Dollar Firms; Fuel Demand Still Major Issue

U.S. West Texas Intermediate crude oil futures are trading lower shortly before the regular session opening after erasing earlier gains. Oil prices ticked higher early in the session on Thursday, although gains were limited by a surprise increase in U.S. crude oil reserves as the coronavirus hit fuel consumption.

Traders were also monitoring the U.S. Dollar because crude oil is a dollar-denominated asset. With the dollar trading near its March low, crude oil surged to a four-month high. A weak dollar tends to drive up foreign demand for U.S. crude oil. Some traders feel the dollar could turn higher quickly if tensions between the United States and China escalate.

At 11:27 GMT, September WTI crude oil is trading $41.73, down $0.17 or -0.41%. This is down from a high of $42.36.

In other news, economic data from Japan, the world’s fourth-largest oil consumer, also weighed on prices. Factory activity contracted for a 15^th straight month in July, indicating that lower economic activity due to the pandemic is extending into the third quarter.

Finally, Southwest Airlines reported a $915 million loss and American Airlines posted a $2.1 billion net loss. Both airlines warned travel demand will remain weak unless the coronavirus gets under control. This will weigh on demand for distillates like Jet Fuel.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. A trade through $42.51 will signal a resumption of the uptrend. The main trend will change to down on a move through $39.97.

Key support is a series of 50% levels at $41.72 and $41.24 and a short-term retracement zone at $40.64 to $40.20.

Daily Swing Chart Technical Forecast

Based on the early price action, the direction of the September WTI crude oil futures contract on Thursday is likely to be determined by trader reaction to the longer-term 50% level at $41.72.

Bullish Scenario

A sustained move over $41.72 will indicate the presence of buyers. The first upside target is $42.51. Taking out this level could trigger an acceleration to the upside. This move will fill in the gap formed back in March with conviction.

Bearish Scenario

A failure at $41.27 will signal the presence of sellers. This could trigger a quick break into a minor 50% level at $41.24. Since the main trend is up, buyers could come in on a test of this level.

If $41.24 fails as support then look for the selling to possibly extend into the short-term retracement zone at $40.64 to $40.20. This is the last potential support are before the $39.97 main bottom. So we expect buyers to come in to defend the trend.

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