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James Hyerczyk
WTI and Brent Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are edging lower as traders try to consolidate prices after another steep sell-off the previous session. The current price action indicates that chart-watching traders are recognizing the importance of key 50% to 61.8% retracement zones of the entire late-April to late-August rally.

Does this week’s price action mean the selling is out of control? No. All we can surmise is that the fundamentals have worsened enough since about August 26 to take away about half of the entire rally from April.

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Since that high was reached, we’ve seen U.S. stimulus funds evaporate as fiscal coronavirus aid expired, the end of the U.S. driving season, increased U.S. production, a failure to pass new fiscal stimulus legislation, increased production from Libya, OPEC+’s plan to continue to reduce its production cuts and a resurgence of the coronavirus in the United States, Europe and Russia.

At 08:25 GMT, December WTI crude oil futures are trading $36.15, down $0.02 or -0.06% and December Brent crude oil is at $37.36, down $0.29 or -0.77%.

Oil Losses Deepen as Anxiety Builds Over Lockdowns, US Elections

Global oil prices are under pressure again on Friday, although the selling is not as bad as it was earlier in the week, with both futures contracts set for a second straight monthly decline. The catalysts behind the selling are growing concerns that the rise in COVID-19 cases in Europe and the United States could hurt consumption.

Global coronavirus cases rose by a single-day record of half a million on Wednesday prompting governments across Europe to impose mobility restrictions again to curb the spread of the virus.

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Short-Term Outlook

Governments around the free world tried to stop the spread of the virus by telling their citizens to wear masks, practice social distancing, avoid crowded areas and to test frequently. While these “requests” were being followed, oil traders began to bet on a steady demand recovery. But the plans blew up as people took matters into their own hands, leading to a resurgence in the pandemic.

With cases rapidly rising around the world and threatening the global demand recovery, bullish speculators had no choice but to liquidate their long positions. There is uncertainty over when demand will return, and when traders see uncertainty, they sell their positions and move to cash or other protective assets. Some even short the market.

So is the market out of control? No it is not. The selling has been orderly and there are sound reasons behind it.

But since it looks as if the pandemic will get worse before it gets better, no one really has control over demand. So the only choice is to work on the supply. That could mean lowering production in the United States, OPEC+ telling Libya to lighten up on production, or OPEC and its allies including Russia postponing plans to raise their output by 2 million bpd in January. Saudi Arabia and Russia are in favor of maintaining the group’s output reduction of about 7.7 million bpd currently into next year. If they start to push this agenda then prices may stabilize.

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

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