Oil Tests The $43 Level On Vaccine OptimismOil gained strong upside momentum and is trying to settle above the nearest resistance level at $43.
Oil Video 23.11.20.
75% of retail CFD investors lose money
At this point, vaccine optimism is the key catalyst that is pushing oil to higher levels. The near-term situation for oil demand remains challenging. It looks like European countries will cautiously emerge out of their lockdowns in an effort to save Christmas so demand for oil in Europe will remain under pressure in December.
In my recent article on oil, I wrote that the market needed several bullish inventory reports or positive vaccine news to settle above the $43 level. While it remains to be seen whether upcoming inventory reports will provide any support to the oil market, additional vaccine news is already in play.
The key question is whether the current optimism will be sufficient enough to push oil above August highs at $43.75. In my opinion, this is a plausible scenario in case oil traders continue to ignore near-term developments on the oil demand front and focus exclusively on the outlook for oil demand in 2021.
The Number Of U.S. Oil Rigs Declines By 5
The recent Baker Hughes Rig Count report indicated that the number of U.S. rigs drilling for oil declined by 5 to 231. The number of working oil rigs has been in a steady uptrend in recent weeks, and a sudden decline is a favorable development for the oil market.
The previous EIA Weekly Petroleum Status Report showed that U.S. oil production increased from 10.5 million barrels per day (bpd) to 10.9 million bpd. However, EIA is not bullish on U.S. domestic oil production and believes that it will not be able to get far away from 11 million bpd.
The recent decline in the number of U.S. oil rigs supports this view, but it’s impossible to draw conclusions from just one data point. If the number of U.S. rigs drilling for oil continues to decrease or at least stabilizes near current levels, the market will likely believe that U.S. production will not increase above 11 million bpd, which will be bullish for oil.
For a look at all of today’s economic events, check out our economic calendar.