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James Hyerczyk
WTI and Brent Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures fell nearly 2% on Friday, reducing their weekly gain due to concerns the pace of the global recovery could slow from a resurgence of coronavirus cases.

On Friday, September WTI crude oil futures settled at $41.60, down $0.35 or -0.83% and December Brent crude oil closed at $45.33, down $0.50 or -1.09%.

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Reuters said, “The rise in infections remains the dominant issue for the fuel demand outlook. Cases in the United States are still rising in a number of states, while India recently reported a record jump in infections.”

Talks between U.S. lawmakers over another round of stimulus have stalled, meanwhile. U.S. President Donald Trump has threatened to pull White House representatives out of talks and instead issue executive orders to address economic needs.

The inability to come up with a new fiscal stimulus package is raising doubts about the economic recovery in the U.S., and this is encouraging some investors to trim long positions, and aggressive speculators to increase bets on the short-side.

Meanwhile, OPEC member Iraq pledged to cut output further in August, which helped underpin prices a little on Friday, preventing a major sell-off. The nation has been a laggard in fully meeting its pledge as part of an April deal to reduce supply.

In economic news, U.S. Non-Farm Payrolls for July came in slightly better than expected, but still showed employment growth slowed. U.S. Democratic leaders said the jobs report showed more investments were needed.

U.S. energy companies cut the number of oil and natural gas rigs this week to a record low for a 14th week. U.S. oil rigs fell by four to 176 this week, their lowest since July 2005, according to data from energy services firm Baker Hughes Co.

Finally, money managers raised their net long U.S. crude futures and options positions in the week to August 4 by 8,096 contracts to 368,643, the U.S. Commodity Futures Trading Commission (CFTC) said.

Short-Term Outlook

The rig count is going down, employment is going up although slowly. Meanwhile, hedge funds and other commodity money managers raised their net long positions. These factors are enough to prop up prices and prevent a wash-out like we saw in April and May, but they’re not really enough to trigger a breakout to the upside.

We saw at mid-week what an unexpected drop in crude oil inventories can do, but then for two days when saw the effect of rising gasoline and distillate stockpiles, amid worries that they are going to continue to grow if the U.S. can’t contain the spread of coronavirus.

A spike down on July 30 and a spike up on August 5, leads me to believe the market is going to remain rangebound although with the money managers net long, I have to lean a bit to the upside. The key level controlling the longer-term direction is a 50% price at $41.72.

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

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