Crude oil price is rising today as traders reflect on the ongoing demand and supply dynamics. The price of Brent is up by 0.35% to $42.10 while the West Texas Intermediate is up by 0.25% to $40.40.
Oil traders are reacting to the recent uptick in the number of coronavirus cases in Europe. Yesterday, the United Kingdom reported more than 6,000 new cases, bringing the total reported this week to more than 10,000. That makes it the worst week in months. As a result, the government has put in place circuit-breakers to halt the spread. A new major outbreak, coming at a time when no one knows the timeline of a vaccine, would be a difficult thing for oil prices.
Crude oil price is also crawling back even after the relatively weak inventories data from the United States. On Tuesday, data from the American Petroleum Institute (API) showed that the number of inventories rose to 0.691 million. That was a bigger increase than the 4 million drawdown that analysts were expecting. And on Wednesday, data from the Energy Information Administration (EIA) showed that inventories declined by more than 1.63 million barrels.
Meanwhile, investors still don’t know what Saudi Arabia plans to boost prices. Indeed, the country’s minister said that the government was not yet ready to make any announcement. The likely reaction would be to increase the enforcement measures on the already-agreed cuts.
At the same time, oil price is reacting to recent data from OPEC, EIA, and IEA that reduced their previous demand forecasts. They cited the rising covid cases as one reason for lower demand. Meanwhile, according to Bloomberg, oil traders are reporting increased supplies from Iraq. Also, supply from Libya is expected to increase sharply following last week’s deal. In a statement, Vandana Hari, a respected analyst said:
“Bearish influences due to an increase in supplies from Iraq and Libya and resurgence of the virus in Europe outstripped the support from draws in U.S. stockpiles this week.”
Brent crude oil technical outlook
The four-hour chart shows that Brent crude oil price has been wavering in the past two days. The price is trading at 42.02, which is a bit higher than this week’s low of 40.91. Also, the price is trading along the 38.2% Fibonacci retracement level. It has also formed a channel pattern that is shown in green. This channel seems to be a bearish flag since it came after three consecutive four-hours of straight declines.
Therefore, I suspect that the Brent will reverse at near the upper side of the channel and head lower. On the flip side, a move below the support at $41.30 will invalidate this trend.