Oil Gains Ground On Strong Economic Data From China

Oil Video 01.09.20.

Chinese Economy Continues To Rebound

Positive economic reports from China remain an important supportive factor for the oil market. Today, China reported that its Manufacturing PMI increased from 52.8 in July to 53.1 in August. Numbers above 50 show expansion.

The continuation of economic rebound in China is very important for the rebound of oil demand, especially in the current situation when air travel demand remains under huge pressure due to the continued spread of coronavirus.

In addition, China is set to increase its purchases of energy from the U.S. as it has to comply with the terms of the Phase 1 trade deal between the world’s biggest economies.

U.S. and China have recently confirmed that the first phase of the trade deal remained intact. China was not very active in buying U.S. goods due to the problems posed by the pandemic but will boost its activity on this front, providing additional support to the oil market.

Fundamentally, China is, perhaps, the brightest spot in the whole market as its economy continues to rebound and its demand for oil continues to increase.

Oil Traders Continue To Focus On The Direction Of U.S. Dollar

U.S. dollar was very active after the Fed stated that it would target an average inflation of 2%. The initial price action was very volatile but traders realized that the Fed’s new target will lead to years of low interest rates and pushed the U.S. dollar lower.

A weak U.S. dollar is bullish for dollar-denominated commodities and provides  support to the oil market which struggles to gain momentum due to continued problems on the coronavirus front around the world.

In my opinion, the decline of the U.S. Dollar Index from 97.50 at the beginning of July to the current levels near 92 was a major supportive factor that allowed WTI oil to stay above the $40 level and test the current resistance at $43.50.

At this point, the continuation of the U.S. dollar downside trend may help oil gain more ground, while a sudden rebound could present serious risks for the current upside trend.

Meanwhile, traders will also keep an eye on the latest inventory data since API Crude Oil Stock Change report is set to be published today.

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