Oil Falls Below $37 As Sell-Off Turns Into Panic

Oil Video 08.09.20.

Oil Falls On Demand Concerns

Oil’s sell-off intensified as traders became increasingly worried about the pace of the oil demand recovery.

Yesterday, we discussed Saudi Arabia’s decision to cut prices for its customers. Not surprisingly, the market interpreted this move as a sign of a weak demand.

In addition to the bearish news from Saudi Arabia, IEA director for energy markets and security, Keisuke Sadamori, stated that current oil demand recovery was not robust and that jet fuel demand remained a big problem.

Demand for jet fuel directly depends on the world’s success in the battle against coronavirus. At this point, the world struggles to contain COVID-19, and some countries have to battle against a second wave of infections.

Mass vaccination is not expected until mid-2021 so jet fuel demand will remain under significant pressure for many months to come. In this light, it’s hard to expect a return to pre-coronavirus levels of demand anytime soon.

In recent months, oil traded in a tight range, and traders paid little if any attention to the developments on the coronavirus front. Now, it looks like this topic is getting back into spotlight since the continuation of oil demand recovery depends on the world’s ability to contain the virus without additional restrictions.

Strong U.S. Dollar And The End Of U.S. Driving Season Put Additional Pressure On Oil

The U.S. Dollar Index has finally managed to settle above the 20 EMA at the 93 level and continued its rebound. Strong U.S. dollar is a negative catalyst for oil which is traded in dollars.

In previous months, U.S. dollar weakness provided additional support to oil prices, and a lack of this support is a negative catalyst for oil.

Another factor that contributed to the sell-off is the end of the U.S. driving season. The summer driving season supports demand for gasoline, and it remains to be seen whether gasoline consumption will be able to rise without this support.

Without a continued increase in demand for oil, crude inventories will stay at elevated levels, putting pressure on prices. While the current oil price action looks like a panic, it is backed by some fundamental concerns.

For a look at all of today’s economic events, check out our economic calendar.