Oil Loses Ground Despite Major Weakness Of The U.S. Dollar

Oil Video 27.07.20.

Finally, The Number Of U.S. Oil Rigs Increases

The recent Baker Hughes Rig Count report has indicated that while the total number of U.S. drilling rigs declined by 2 to 251, the number of rigs drilling for oil increased by 1 to 181.

The latest EIA Weekly Petroleum Status Report showed that U.S. domestic oil production increased from 11 million barrels per day (bpd) to 11.1 million bpd. In this light, the stabilization in the number of active oil rigs looks logical.

The key question is whether the number of active oil rigs will continue to increase. Currently, WTI oil is trading above the psychologically important $40 level but oil has recently failed to gain more upside momentum after it managed to get above the resistance at $41.50, which is a worrisome development for oil bulls.

It looks like traders are really worried about the recent increase in crude oil inventories . In this situation, the market will likely pay significant attention to the API Crude Oil Stock Change report which is scheduled to be published on Tuesday.

Oil Fails To Gain More Ground Despite Major Weakness Of The U.S. Dollar

Typically, a weak U.S. dollar is bullish for commodities since it makes them cheaper for buyers who have other currencies. Currently, precious metals are enjoying a huge boost from the weaker U.S. dollar, but oil lacks momentum.

The American currency has made a material downside move in July. The U.S. Dollar Index has started the month above the 97 level but gained downside momentum and declined closer to 93.5.

Meanwhile, oil continues to trade close to the $40 level. While oil did not experience any notable downside, it is possible that the major downside move of the U.S. dollar masked oil’s weakness.

If that’s the case, oil may find itself under material pressure once the U.S. dollar starts to rebound. This may happen soon since RSI for the U.S. Dollar Index is below the 20 level, suggesting that the American currency is extremely oversold.

The main problem is that various stimulus measures do not provide direct help to the oil market. Oil needs material improvements on the coronavirus front and sustainable rebound of economic activity which will lead to improvements in oil demand.

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