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James Hyerczyk
WTI and Brent Natural Gas

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading mixed early Tuesday following yesterday’s steep plunge as the latest tropical storm in the Gulf of Mexico lost strength, but coronavirus flare-ups around the world helped elevate concerns over fuel demand.

At 06:11 GMT, December WTI crude oil futures are trading $39.84, down $0.01 or -0.03% and December Brent crude oil is at $41.96, unchanged for the session.

Crude oil prices, which plummeted about 4% on Monday, steadied early Tuesday as Texas refineries stayed open despite forecasts of heavy flooding, with Tropical Storm Beta expected to keep losing strength, calming worries about U.S. refinery demand for feedstock.

A refinery feedstock is product or a combination of products derived from crude oil and destined for further processing other than blending in the refinery industry.

Monday Recap

Monday’s steep plunge was spurred by concerns that an increase in coronavirus cases in major markets could lead to fresh lockdowns and hurt demand. That raised the possibility that Libyan oil could return when it isn’t needed. Translation:  Weak demand, rising supply is bearish.

Crude oil traders are particularly nervous about demand in places like the United Kingdom, where fresh restrictions are being imposed. Meanwhile, U.S. health officials are also warning of a new wave in the coming winter.

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American Petroleum Institute Weekly Inventories Report

Later today at 20:30 GMT, traders will get a chance to react to the latest crude oil and fuel inventories data from the American Petroleum Institute (API).

U.S. crude oil and gasoline stockpiles likely fell last week, while inventories of distillates, including diesel, were seen climbing, a preliminary Reuters poll showed.

Daily Forecast

Monday’s sell-off wasn’t a surprise since the bearish longer-term fundamentals didn’t change at all. Therefore, there was nothing to support the rapid price rise. Technically, a rally without a support base is doomed to fail. Fundamentally, the hedge funds had just dumped their long positions about two weeks ago, and I don’t think they suddenly turned into buyers.

Speculators drove the markets higher because of the hurricanes. Meanwhile, the hedge funds may have been waiting to short a rally rather than short at last week’s multi-month lows. The price action suggests the markets are clearly fragile.

Weeks ago, the markets were rangebound at higher prices for a considerable amount of time. It’s likely we’re going to become rangebound again, but at much lower prices.

The stalling of the economic recovery in Europe could cap gains, but prices could be supported if OPEC decides not to ramp up production.

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

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