U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are edging higher on Friday after a steep fall the previous session changed the main trend to down on the daily chart. Nonetheless, the markets were able to bounce back throughout the session, finishing just under four-month highs.
Despite the late volatility, the markets remain on track to post solid monthly gains, mostly benefiting from a weaker U.S. Dollar which continued to be hit by concerns over the recovery of the U.S. economy as the coronavirus ravages economic output. A falling dollar tends to increase foreign demand for dollar denominated crude oil.
At 12:59 GMT, September WTI crude oil is trading $40.37, up $0.45 or +1.13% and December Brent crude oil is at $44.12, up $0.18 or +0.41%.
The price action toward the end of the week clearly shows that investors are becoming more concerned about demand.
Oil Set for Fragile Recovery as Economies Limp Towards Normal: Reuters Poll
A Reuters poll released on Friday showed that oil prices are set for a slow crawl upward this year as the gradual easing of coronavirus-led restrictions buoy demand, while a potential second COVID-19 wave could slow the pace of recovery.
The survey of 43 analysts and economists forecast benchmark Brent crude to average $41.50 a barrel in 2020, up slightly from the $40.41 consensus in last month’s survey and compared with around $42 average for the benchmark thus far this year. It is expected to average $49.85 in 2021.
The 2020 outlook for West Texas Intermediate rose to $37.51 per barrel from June’s $36.10.
The poll projected global demand to contract by between 7.2 and 8.5 million barrels per day (bpd) this year, versus last month’s 6.5-8.7 million bpd prediction. The International Energy Agency raised its 2020 demand forecast earlier this month to 92.1 bpd.
Prices could remain essentially rangebound over the near-term until major strides are made on the demand side of the crude oil equation. On the supply side, things seem to be moving in the right direction with the extension of the OPEC+ production cuts although they are expected to be tapered from August 1 until the end of the year.
The problem is with the demand side where uncertainty rages over whether the re-opening of the global economy will be impeded.
It seems the development of a successful vaccine against coronavirus may be necessary to fast-track an economic recovery and in turn boost oil prices. Without a vaccine, the recovery is likely to be rocky, leading to a series of stops and starts in the next crude oil rally.
Until traders are convinced the recovery in the global economy will be faster and stronger than expected, it’s going to be hard to build a case for a breakout to the upside and the start of a prolonged rally.
For a look at all of today’s economic events, check out our economic calendar.
This article was originally posted on FX Empire
More From FXEMPIRE:
- Natural Gas Weekly Price Forecast – NG Markets Form Neutral Candle for the Week
- Gold Price Forecast – Gold Markets Continue Upward Grind
- Silver Weekly Price Forecast – Silver Markets Showing Signs of Gravity
- Crude Oil Price Forecast – Crude Oil Markets Continue to Dawdle
- Gold Weekly Price Forecast – Gold Markets Touch Major Level
- Oil Remains Under Pressure As Virus-Related Restrictions Pose Risk For Oil Demand