The price of crude oil is ready to test the $43.50 resistance level this week as dollar weakness persists. The dynamics are set up for a potential run to $50.00 by year-end.
Oil prices were boosted by the recent emergence of coronavirus vaccine candidates that could be released as early as December. This would see an end to the virus lockdowns and halt the demand slowdown that has hit the market in 2020. U.S. inventories boosted crude prices at week with a rise of only 0.8 million barrels. The number was less than analysts had expected and traders are now looking beyond the short-term gyrations to consider the impact of large vaccine distributions. The latest figures released by the Energy Information Administration also showed that U.S. crude stocks are around 6% above the five year average for the season, close to 500 million barrels.
Another bullish catalyst for oil prices could be a confirmation from OPEC that the group will cancel, or reduce, their planned supply increase for January. A second wave of virus cases hit OPEC’s demand projections and they now expect a rise of 6.3 million barrels per day (bpd) in 2021 to 96.3 million bpd. This was 300k lower than last month’s prediction and the path ahead will be a fine line between economies opening up and another supply glut developing. OPEC gather for a formal meeting at the end of the month and the group were also under pressure from a restart in Libyan oil production, which puts another weight on the supply goals and an extension to the current cuts is possible.
Upside risk for the bullish thesis would come from a slower path to coronavirus vaccine delivery, a greater rise in virus cases, or a rebound in the U.S. dollar. The European lockdowns are in force until the first week of December and they could be extended towards Christmas, which could weigh on oil prices. Officials in Europe and the U.S. have been pushing for emergency vaccine clearance and this would likely be granted.
The U.S. dollar continues to drop with the U.S. election still not officially declared. A judge in Pennsylvania has thrown out the latest Trump legal case and they will now move to the Supreme Court. The lawyers for the prosecution say they are happy with this route and Sydney Powell appears to be running a separate case after the Trump campaign distanced themselves from the Federal Prosecutor. Current trends in the U.S. dollar are representative of a Biden win and a real market shock could happen if the election can be overturned or put to a revote.
Oil is likely to test the $43.50 resistance level this week and a move above there would set the stage for a rally to $50.00. That move could be propelled by an end of month OPEC decision and crude would then be at the mercy of the election and the U.S. dollar in early-mid-December. Alongside this, we have the risk of Brexit, but the latest updates said that the deal was “95% done”. The longer-term support for oil is unclear with so many governments supporting a green agenda, but there may be price support from supply disruptions and less spending on oil & gas infrastructure.
W.T.I. oil prices found support at the $40.00 level and this created the foundation for a rally to $43.20 with the key resistance still at $43.50. This level will be tested on the week and the price action there will determine whether the $50.00 level can be seen by year-end. The Investing Cube team is currently available to help all levels of traders with the Forex Trading Course or one-to-one coaching.
