WTI’s reversal from $46.25 high extends below $45

• WTI halts a six-day rally to seven-month highs at $46.25.
• Oil rally falters on concerns about oversupply.
• The market awaits a key OPEC meeting next week.

Front-month WTI futures have halted a six-day rally that boosted the price of the barrel to levels above $46 for the first time since March. Crude prices have corrected lower on Thursday, retreating to session lows at $44.75.

Oil rally loses steam on concerns about supply

Oil prices are pulling back after having rallied nearly 30% in November, boosted by hopes that a COVID-19 vaccine might be available early next year. The promising advances in the trials of diverse pharmaceutical firms have eased concerns about the grim outlook of global demand.

The market, however, seems to have digested vaccine news to realize that the problem of an oversupply is far from solved. With COVID-19 cases surging in Europe and the United States, the authorities of the major economies are likely to maintain the current lockdowns for some time.

The US has recorded 2.3 million in the last two weeks while German Chancellor, Angela Merkel, confirmed recently that the social restrictions will remain active in an attempt to curb the contagions and avoid a collapse of the health system.

Beyond that, the 800,000-barrel increase on Libya’s output, which has exceeded the 1.2 million barrel per day, has increased concerns of oversupply, adding bearish pressure on oil.

The investors are awaiting the OPEC meeting due next week, where the world’s major oil producers are expected to discuss the need to extend the current output cuts beyond January 2021. The outcome of that meeting is likely to determine the near-term direction for oil prices.

Technical levels to watch