Oil Little Changed Ahead Of The Weekend

Oil Video 25.09.20.

Oil Stays Near The $40 Level Despite Virus Worries And Strong U.S. Dollar

Oil continues to trade near the $40 level amid worsening situation with coronavirus in Europe and strong U.S. dollar.

Despite the above-mentioned negative catalysts, oil has not developed any significant downside momentum. The recent decrease in inventory levels together with the increase in gasoline demand provided significant support to oil which offsets the negative catalysts, at least for now.

In addition, traders do not believe that European governments will follow Israel’s example and impose second lockdowns. There is a broad consensus that Europe cannot afford to impose severe restrictions for the second time in a row so the market does not price in this scenario.

Interestingly, oil ignored the recent strength of the U.S. dollar. Typically, strong dollar is bearish for commodities but the market got so excited about the rebounding U.S. gasoline demand that oil managed to stay near the $40 level despite the dollar’s best week in many months.

Recent U.S. Economic Reports Show That Economy May Be Slowing Down

On Thursday, U.S. reported that Initial Jobless Claims increased from 866,000 to 870,000 while analysts expected that Initial Jobless Claims would drop to 840,000. This report may be the first sign that the easy part of the job market recovery is done, and the economy struggles to make another step forward.

Today, U.S. Durable Goods Orders report indicated that Durable Goods Orders increased by 0.4% month-over-month in August compared to analyst consensus of 1.2%.

Durable Goods Orders show producers’ desire to invest in business which may be slowing down after the initial strong rebound.

These reports are certainly uncomfortable for oil bulls. If U.S. lawmakers fail to reach consensus on the next coronavirus aid package, the economic rebound may slow down and put pressure on oil demand.

As I noted above, oil bulls are encouraged by the recent increase in U.S. gasoline demand. However, the recent upside trend in gasoline consumption may find itself under pressure if economic activity stalls.

In my opinion, the upcoming economic reports present some danger for oil bulls as oil may find it hard to stay near the $40 level if additional signs of a slowdown emerge.

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