Oil Lost Momentum And Failed To Settle Above $38

Oil Video 10.09.20.

Oil Finds Itself Under Pressure As Crude Inventories Increased

Yesterday’s API Crude Oil Stock Change report indicated that U.S. crude inventories increased by 2.97 million barrels. Meanwhile, gasoline inventories declined by 6.89 million barrels and distillate fuel inventories increased by 2.29 million barrels.

The increase in crude inventories is a negative development for the oil market, although it has to be confirmed by EIA Weekly Petroleum Status Report.

The U.S. driving season has come to an end so traders have a reason to fear that demand for gasoline will decrease.

In addition, the most recent U.S. Initial Jobless Claims and Continuing Jobless Claims reports indicated that the U.S. job market recovery had likely stalled. The continuation of gasoline demand recovery without a strong recovery in the job market will likely be impossible.

Not surprisingly, API Crude Oil Stock Change report put material pressure on oil prices. Interestingly, the recent strong downside move of the U.S. dollar did not help oil gain more ground as demand concerns prevailed.

European Countries Start Thinking About Additional Virus Containment Measures

The reopening of the economy in Europe is not going as well as planned from a healthcare point of view. In some countries, the number of new coronavirus cases has significantly increased.

Yesterday, Spain recorded 8,866 new cases while France recorded 8,577 new cases. Only India, USA, Brazil and Argentina had more cases than Spain and France.

According to a Reuters report, the French government is considering local lockdowns to fight the spread of the virus. While some would argue that local lockdowns will do much less damage than national lockdowns, such lockdowns are most likely to happen in densely populated areas which are often the most developed ones.

If France, or any other developed country, chooses the route of local lockdowns, the oil market will take a double hit. First, the demand for oil will be directly impacted by lockdowns. Second, traders will fear that other countries will follow suit.

Recently, AstraZeneca had to pause its COVID-19 vaccine trials due to unexplained illness of one of the participants, highligting the complexity of vaccine development process.

Without a vaccine, the oil market will have to exist under constant pressure from alarming virus news. Most likely, oil will need an additional decline in inventory levels to get back to recent highs in this environment.

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