Oil Mixed As Traders Shrug Off Virus WorriesOil is trying to get to another test of the resistance at the $42 level.
Oil Video 19.11.20.
For Now, Traders Are Focused On Vaccine News Rather Than Surging Coronavirus
While stocks have lost plenty of ground in the last few hours of yesterday’s trading session and remain under some pressure today on worries about new anti-virus restrictions, oil managed to stay near $41.50.
At this point, it looks like oil traders are ready to take a long-term view of the market. There is a similar story going on in the precious metals market which is currently under pressure as recent vaccine news reduced demand for safe haven assets.
The key question for oil traders is whether the market will be able to tolerate additional bad news on the coronavirus front. The situation in Europe is stabilizing thanks to lockdowns although the number of new cases reported each day remains high.
At the same time, the situation in the U.S. is getting worse, and new restrictions are regularly introduced. In addition, consumers may voluntary decrease their movements due to virus fears. Today, United Airlines stated that it witnessed rising cancellations and falling bookings as consumers were anxious about the virus.
The recent gasoline demand data suggests that demand is on its way down as it declined from 8.76 million barrels per day (bpd) in the previous week to 8.26 million bpd. If demand remains soft, inventories will continue to increase, which will ultimately put pressure on the price of oil.
Potential Support From OPEC+ Provides Material Help To The Oil Market
At this point, it looks like the market has priced in a three-month extension of current produciton cuts from OPEC+ members.
The idea is that this extension will support the market through the challenging winter months while vaccines will be ready for mass deployment before the beginning of the next year’s driving season.
If this scenario is realized in practice, demand for oil will materially increase by next summer and push oil prices to new highs.
If OPEC+ countries fail to extend current production cuts and increase their production by 2 million bpd at the beginning of 2021, oil prices will collapse. Since everyone understands that failure to extend current production cuts will lead to a major sell-off, the probability of this scenario is minimal.
For a look at all of today’s economic events, check out our economic calendar.