Oil Stays Below The Major Resistance Level At $41.50

Oil Video 16.07.20.

Oil Fails To Gain Momentum After Bullish Inventory Report

On Wednesday, WTI oil failed to gain momentum after the release of EIA Weekly Petroleum Status report which showed that crude inventories declined by 7.5 million barrels.

On Thursday, the same pattern continues as oil fails to gain more ground and stays below the resistance level at $41.50.

Yesterday, Saudi energy minister stated that OPEC+ decision to reduce production cuts from 9.6 million barrels per day (bpd) to 7.6 million bpd will have little impact on the market as the biggest part of the supply increase will be consumed internally by OPEC+ members.

This increase is expected due to the continued economic rebound after the acute phase of the coronavirus crisis. In addition, August is the hottest summer month so traders should expect that demand for air conditioning and holiday-related transportation will increase.

Now that inventories have finally started to fall, oil should have better chances to develop more upside momentum and continue the previous upside trend. However, it looks like oil will need additional catalysts to get to higher levels as several risks are keeping it glued to the $40 level.

What Keeps Oil Glued To The $40 Level?

In my opinion, there are several factors that currently prevent oil from getting to higher levels.

The first factor is the risk posed by uncontained coronavirus pandemic. The situation on the virus front is not getting better. According to data from Johns Hopkins University, the U.S. has already recorded 3.5 million cases of coronavirus since the beginning of the pandemic. In addition, the country has just reported a record daily increase in the number of new coronavirus cases.

The second factor in play is the fear of higher U.S. production in case of price upside. Higher prices will allow U.S. oil firms to hedge their production and facilitate a longer-term upside trend in production.

The third factor is the high inventory levels. The inventory overhang is a material obstacle on oil’s way up so any decrease in crude inventories is an important step on the road to higher oil prices.

At this point, it looks like oil will need continued declines in inventory levels together with positive demand data to have sustainable upside above $41.50.

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