Crude oil demand starts faltering

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The West Texas Intermediate and Brent crude oil futures are trading lower as traders try to consolidate prices after a crash in the previous session. The price dynamics tell us that traders who follow the charts realize the importance of the key retracement zones of 50% and 61.8% compared to the rise registered between the end of April and the end of August.

Analysts don’t think that this week’s price movement indicates that sales are out of control. They conclude that since August 26, fundamentals have deteriorated enough to eat up almost half of the rise that started in April.

After reaching that maximum peak in August, there have been a series of bearish factors. The aid that the United States had injected to alleviate the effects of the coronavirus faded. The season ended with the most displacements of the year in the United States; production also increased in the US and negotiations to carry out a new stimulus package failed. Besides, production increased in Lybia, the OPEC + plan to increase production in January next year, and the contagion of coronavirus resurged in the United States, Europe and Russia.

At the beginning of the trading day, December WTI futures were trading $36.15, falling $0.02 or -0.06% and December Brent crude oil was at $37.36, falling $0.29 or -0.77%.

Increased anxiety about lockdowns and US elections compounds oil losses

Oil prices around the world are under pressure again this Friday. Sales are not as strong as in the earlier days of the week. Both futures contracts are on track to post their second month in a row in losses. The main factor behind the sales is the growing concern generated by the increase in COVID-19 cases in both Europe and the United States and the effect it will have on demand.

Wednesday saw the largest daily increase in coronavirus infections worldwide, with a record increase of half a million people. It prompted several European governments to reimpose restrictions on mobility to prevent the spread of the virus.

Governments tried to stop the spread of the virus by telling their citizens to wear a mask, comply with social distancing, avoid crowds, and get tested frequently. While these requests were respected, oil traders were betting more and more on a stable recovery in demand. However, all these plans fell apart the moment people stopped complying with these rules, leading to the resurgence of the pandemic.

It seems that right now the pandemic is going to get worse and nobody has real control over demand, so the only thing that can drive the price is the supply side. That could translate into cutting production in the United States, OPEC + telling Libya to cut production, or OPEC and allies like Russia deciding to postpone their decision to increase output in January. 

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