Oil Tries To Settle Below The $40 Level

Oil Video 04.09.20.

Strong U.S. Dollar Puts Significant Pressure On Oil Prices

Today, oil was trying to rebound as traders initiated long bets after the two-day sell-off. Unfortunately for oil bulls, this rebound was stopped by the strength of the U.S. dollar, which put pressure on commodities.

The U.S. Dollar Index has managed to get above the 20 EMA at the 93 level, a sign that the American currency has good chances to start a new upside trend.

This may be a pivotal moment for dollar-denominated commodities as the U.S. dollar weakness in July and August played a very important role in commodities markets’ upside.

Oil’s problems are not limited to the strength of the U.S. dollar as S&P 500 is experiencing a very strong sell-off for the second day in a row, putting pressure on demand for riskier assets.

A combination of strong dollar and falling stocks has the potential to push WTI oil prices below the $40 level. At the same time, it remains to be seen whether oil will be able to develop additional downside momentum or it will soon get support from bargain hunters.

Demand Concerns Are Another Factor In Play

On Thursday, we discussed the slowdown in U.S. gasoline demand which served as a negative catalyst for oil prices.

However, demand concerns are not limited to gasoline demand. There are signs of the second virus wave in Europe, and EU countries start introducing virus containment measures.

While nobody talks about a real lockdown, such measures will increase consumer anxiety and ultimately put pressure on the speed of the economic recovery, hurting the demand for oil.

It is widely believed that a full return to normal life is impossible without mass vaccination. The World Health Organization’s view on the speed of vaccine deployment is not inspiring.

WHO expects that mass vaccinations will not happen before mid-2021, which means that travel demand will likely stay suppressed until the second half of next year.

This is a worrisome scenario for oil since some OPEC+ countries want to put more production to the market.

Iraq has reportedly wanted to get an exemption from the OPEC+ deal in the first quarter of 2021. The countries’ officials denied the report although it was based on the interview of Iraq’s Oil Minister Abdul Jabbar. Russia stated that OPEC+ should be ready to adjust the deal as demand for oil recovers.

As the time goes by, OPEC+ will have increasing problems with ensuring the full compliance with the original deal, which is an additional longer-term risk for oil prices.

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