Market Analysis – Crude Oil
Both Crude and Brent Oil have not failed to disappoint traders in terms of volatility and momentum over the past 18 months. In 2020, after the global lockdowns, we saw oil prices crash by over 84%, followed by a significant correction which has continued to date and measures over 617%. Over the last 24-hours the price of Crude Oil has grown by $0.76 and has formed its fourth bullish candlestick on the daily timeframe while attempting to form its fifth bullish. The price is currently at a high not witnessed since October 2018. Traders are now contemplating whether the trend will continue, or if the price may be overbought and find resistance.
On Friday, the International Energy Agency (IEA) said it expects global demand to return to pre-crisis levels by the end of 2022, much earlier than previously announced dates. Also, the department called on the Organization of Petroleum Exporting Countries and Allies to increase production to meet demand after the production restriction to support prices amid the development of the pandemic in 2020. So far, due to previous issues with pricing related to OPEC countries oversupplying the market, the OPEC countries such as Russia, Canada and the Middle East have limited production which has again supported the price in the past. The market will continue to monitor the supply compared to the global demand.
Oil prices are also supported by the active use of vehicles against the backdrop of easing quarantine measures around the world. The indicators came close to the levels preceding the total lockdowns. However, yesterday, June 14, the UK postponed plans to lift most of the remaining restrictions for another month (until July 19) due to the rapid spread of the more contagious variant of the Delta virus. However, the impact of this news on oil prices was not reflected so far. Generally speaking, Oil traders are keeping a close eye on restrictions and possible lockdowns over the summer and Autumn months.
The market is responding positively to the improved outlook for the global economy, which is gradually recovering from the effects of the coronavirus crisis. More and more countries are preparing for the next lifting of pandemic restrictions, which provokes an increase in demand for oil and oil products. At the same time, the situation is not under complete control since infectious disease specialists warn of new possible outbreaks of an increase in the incidence by the fall, and the virus is actively mutating.
Analysts polled by Reuters expect U.S. crude stocks to have fallen for a fourth week in a row by about 3 million barrels. Official figures from the Energy Information Administration are due to be released on Wednesday. Investors and traders are also watching the outcome of a two-day U.S. Federal Reserve meeting, that starts later on Tuesday, for signals on when it will start to scale back monetary stimulus. The Federal Reserve is getting ready to debate how and when to start tapering a massive asset-purchase programme that helped to support the U.S. economy during the pandemic.
One of the basic theories stipulates that increasing interest rates raise consumers’ and manufacturers’ costs, which reduces the amount of time and money people spend driving. Fewer people on the road translates to less demand for oil, which can cause oil prices to drop. However, this is not a guaranteed result neither in terms of whether interest rates will actually be lowered, or even if they are lowered exactly how it will affect the price of oil. Though the market will be evaluating the market’s reaction before positioning their trades accordingly.