U.S. West Texas Intermediate crude oil futures are edging lower on Friday, giving up some of this week's gain. Prices are being capped by doubts about demand recovery due to the COVID-19 pandemic and rising supply.
Although the futures contract is hovering near the high of its two-month trading range and slightly above a long-term 50% level, bullish traders are having a hard time extending the rally because of lingering demand concerns.
The market is also posting an inside move on the weekly chart despite a small gain for the week. This tends to indicate investor indecision and impending volatility. The weekly range is extremely tight with most of this week's gains taking place on Wednesday. A lower close on Friday will mark the third lower close for the week, which isn't a particularly bullish sign.
Fundamentally, crude oil was boosted this week by U.S. government data showing crude oil, gasoline and distillate inventories all declined the week-ending August 7, but gains were capped because the global oil supply is rising due to OPEC and its allies increasing output this month.
US Energy Information Administration Weekly Inventories Report
In its weekly report, the U.S. Energy Information Administration (EIA) reported that U.S. crude oil, gasoline and distillate inventories fell last week as crude production dropped sharply and refiners ramped up production.
Crude oil inventories fell by 4.5 million barrels, the EIA said, compared with analysts'…
U.S. West Texas Intermediate crude oil futures are edging lower on Friday, giving up some of this week's gain. Prices are being capped by doubts about demand recovery due to the COVID-19 pandemic and rising supply.
Although the futures contract is hovering near the high of its two-month trading range and slightly above a long-term 50% level, bullish traders are having a hard time extending the rally because of lingering demand concerns.
The market is also posting an inside move on the weekly chart despite a small gain for the week. This tends to indicate investor indecision and impending volatility. The weekly range is extremely tight with most of this week's gains taking place on Wednesday. A lower close on Friday will mark the third lower close for the week, which isn't a particularly bullish sign.
Fundamentally, crude oil was boosted this week by U.S. government data showing crude oil, gasoline and distillate inventories all declined the week-ending August 7, but gains were capped because the global oil supply is rising due to OPEC and its allies increasing output this month.
US Energy Information Administration Weekly Inventories Report
In its weekly report, the U.S. Energy Information Administration (EIA) reported that U.S. crude oil, gasoline and distillate inventories fell last week as crude production dropped sharply and refiners ramped up production.
Crude oil inventories fell by 4.5 million barrels, the EIA said, compared with analysts' expectations for a 2.9 million-barrel drawdown. Gasoline stockpiles fell 722,000 barrels, the EIA said, exceeding analysts' estimates for a 647,000-barrel drop. Distillate supply fell by 2.3 million barrels, compared with expectations for a 400,000-barrel increase, the EIA data showed.
The most supportive news in the EIA report was the drop in U.S. crude output to 10.7 million barrels per day from 11 million bpd in the previous week.
The EIA's downward revision on Tuesday to a key U.S. oil production forecast for this year also lent support to prices. U.S. crude production is forecast to fall 990,000 bpd this year to 11.26 million bpd, steeper than the 600,000 bpd decline it forecast last month.
OPEC Trims 2020 Oil Demand, Raises Questions about 2021 Due to Virus Fallout
World oil demand will fall more steeply in 2020 than previously forecast due to the coronavirus and there are doubts about next year's recovery, OPEC forecast on Wednesday, potentially making it harder for the group and its allies to support the market, Reuters reported.
World oil demand will tumble by 9.06 million barrels per day (bpd) this year, OPEC said in a monthly report, more than the 8.95 bpd decline expected a month ago.
IEA Sees Lower Oil Demand in 2020, 2021
The International Energy Agency (IEA) lowered its global oil forecasts for the first time in several months on Thursday, as the number of COVID-19 infections remains high and amid ongoing weakness in the aviation sector.
The IEA said it now sees global oil demand for 2020 at 91.1 million bpd, reflecting a fall of 8.1 million bpd day year-on-year. The revised forecast is 140,000 bpd lower than the IEA's previous projection.
Weekly Technical Analysis
Weekly September WTI Crude Oil
Trend Indicator Analysis
The main trend is up according to the weekly swing chart. A trade through $43.52 will signal a resumption of the uptrend. A move through $35.01 will change the main trend to down.
The main range is $61.44 to $21.99. Its 50% to 61.80% retracement zone at $41.72 to $46.37 is the major resistance.
The minor trend is also up. A trade through $38.72 will change the minor trend to down. This will also shift momentum to the downside.
The minor range is $35.01 to $43.52. Its 50% level at $39.27 is support. It is controlling the near-term direction of the market.
The short-term range is $21.99 to $43.52. If the main trend changes to down then its retracement zone at $32.76 to $30.21 will become the primary downside target. This should be considered a value zone so look for buyers to return on a test of this area.
Weekly Technical Forecast
Based on this week's price action, the direction of the September WTI crude oil market is likely to be determined once again by trader reaction to the 50% level at $41.72.
Bullish Scenario
A sustained move over $41.72 will indicate the presence of buyers. This could lead to a quick test of the minor high at $43.52. Taking out this level could trigger an acceleration to the upside since the weekly chart indicates there is no resistance until $46.37.
Bearish Scenario
A sustained move under $41.72 will signal the presence of sellers. The first downside targets are a minor 50% level at $39.27 and a minor bottom at $38.72. Taking out this level could trigger a further decline into $35.01 over the near-term.
Short-Term Outlook
This week's limited trade is likely to produce a higher close for the week. This was produced in one day when a surprise 300,000 barrel drop in weekly production triggered a strong rally. During most of the week, however, the market was trading in a range on low volume.
With both essential components of oil consumption continuing to struggle in the wake of the pandemic, it's hard to build a case for an upside breakout. Even the bullish news about the drop in U.S. production wasn't enough to take out the previous week's high at $43.52.
Although the U.S. cut production, OPEC+ is gradually raising output, which is helping to increase global supply so the EIA production-drop news isn't as bullish as first thought. Furthermore, the ongoing uncertainty around demand caused by the COVID-19 pandemic and the possibility of higher global output could keep a lid on prices.
We're expecting another week of rangebound trading. However, trader reaction to the 50% level at $41.72 will actually set the tone for the week.