- WTI extends recovery moves from $41.19 while flashing two-day winning streak.
- A huge draw in EIA inventories, FOMC-led USD fall offer the latest push to the north.
- US GDP becomes the key, qualitative risk catalysts should also be watched carefully.
WTI picks up the bids near $41.45 during the pre-Tokyo Asian session on Thursday. The energy benchmark recently benefited from a heavy draw in the US oil stockpile and downbeat performance of the greenback. However, fears of the coronavirus (COVID-19)-led demand depletion challenge the bulls.
EIA follows API and Fed keeps the bears happy but…
In its latest Crude Oil Stocks Change report, the US Energy Information Administration (EIA) noted that there was a depletion of 10.6 barrels in the inventories versus a forecast of an increase of 0.3 million barrels in the week ending July 24th. The readings replicate the early-week announcement of private stockpile data from the American Petroleum Institute (API) that marked declines of 6.829 million barrels in the storage figures against the earlier rise of 7.544M during the same noted period by the EIA.
Also acting as an oil-positive catalyst is the bearish bias of the US Federal Reserve (Fed) in its latest monetary policy meeting. The US central bank showed readiness to act with Chairman Jerome Powell emphasizing the need for further fiscal moves and indirectly hinted inflation rate targeting. These signals dragged the US dollar index (DXY) towards flashing fresh low since June 2018. The greenback’s weakness has an inverse relation with the commodity basket and crude oil is no exception to that.
Even if the aforementioned catalysts favor the oil bulls, energy traders remain cautious as the pandemic signals deterioration in the future oil demand. Recently, Bloomberg came out with the news, relying on Morgan Stanley while saying, that the world’s three biggest oilfield service companies wrote down the value of their assets to the tune of about $45 billion during the past year as customers engaged in severe spending cutbacks. These firms include Schlumberger Ltd., Halliburton Co. and Baker Hughes Co. Hence, the oil majors have already marked pessimism and suggested darker days ahead.
It’s’ worth mentioning that the global virus cases grew past-17.00 million with the US be on the top of the list, unfortunately. Additionally, there have been more than 665,000 deaths so far due to the pandemic wherein American registered its highest toll of beyond 1,200 for the first time since May on Wednesday.
Moving on, there is no major oil-specific data/event but preliminary readings of the second quarter (Q2) US GDP will be the key to watch. Market consensus favors a -34.1% reading versus -5.0% prior. Should the actual figures match dismal forecast, the US dollar will mark additional south-run but the gains of the oil will be limited as the outcome also portray weakness in the future oil demand from the world’s largest economy.
Technical analysis
An eight-day-old symmetrical triangle between $40.80 and $41.80/85 confines the black gold’s immediate moves amid bearish MACD. Lower high formation since July 21 also favors the sellers waiting for a clear downside break of $40.80 to target $40.00 round-figures and the monthly low around $38.70. Meanwhile, a surprise rise past-$41.88 will have to refresh the recent top close to $42.55/60 to aim for February 2020 bottom near $44.00.
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