JMMC, closures, vaccine news in focus

WEEKLY FUNDAMENTAL FORECAST OF CRUDE OIL PRICE: NEUTRAL

• Crude oil price outlook is cautiously optimistic due to positive news on coronavirus vaccine
• Global demand for crude oil has fallen amid renewed COVID-19 lockdown measures
• Crude oil prices could rise further and OPEC + is likely to delay an increase in production

Crude oil price action rose and fell during the last five trading sessions. Commodity closely tied to economic activity soared 15% more at the start of the week, but returned about half of those gains to finish only about 8% on last Friday’s closing balance. A notable improvement in market sentiment after the United States Presidential Election, exacerbated by the encouraging headlines from the COVID-19 vaccine, stand out as the main catalysts fueling the latest surge in crude oil prices.

The resurgence of oil demand nerves, stemming in large part from the growing coronavirus lockdown measures and the adverse impact on global GDP growth, likely weighed negatively on the commodity later in the week. That said, crude prices could regain ground recently lost due to the prospect of OPEC delaying its planned production increase.

Although crude oil production in Libya could undermine OPEC + efforts to control supply. Libya’s oil production has soared to 1.2 million barrels a day in recent weeks. Also, detailed in the DailyFX Economic CalendarThe US oil rig count continues to rise and inventory data from the Department of Energy showed an increase of 4.3 million barrels.

These headwinds present downside risks to crude oil price action, in addition to the pervasive threat of a resurgence of coronavirus concerns as new cases rise and lockdown measures are reintroduced. Top central bank officials, such as Federal Reserve President Jerome Powell has emphatically expressed how economic recovery largely depends on the course of the virus.

CRUDE OIL PRICE TABLE WITH VIX INDEX OVERLAYED: DAILY TIME FRAME (JUNE 24 TO NOVEMBER 13, 2020)

Graph by @RichDvorakFX created using TradingView

To that end, as some of the world’s largest economies grapple with another staggering wave of COVID-19, it is no surprise that OPEC has cut its forecast for crude demand for next year and the remainder of 2020 by 300,000 barrels per year. day. Similarly, the IEA lowered its outlook for crude oil demand last week. However, positive news about the coronavirus vaccine, such as Pfizer reports 90% effectiveness in preventing COVID-19, keeps markets optimistic and forward-looking.

This development, and not to mention the strong possibility that OPEC + will delay its planned supply surge, shows the potential to boost crude prices more broadly. However, if next week’s JMMC meeting reveals little appetite for OPEC to postpone its production surge, commodity traders could drive crude oil price action sharply lower.

The address of the VIX Index derived from S&P 500, or indicator of fear, stands out as another possible indicator of where crude oil is headed. Crude oil prices and the VIX index tend to mirror each other, as highlighted by their generally negative correlation. An abrupt jump in the VIX could indicate that risk appetite is souring, which would likely correspond with the selling pressure of crude. On the contrary, if you wait stock market volatility continues to bleed to the downside, crude oil prices could pull back higher as a lower VIX generally indicates an improvement in trader confidence.

Keep reading –How to trade crude oil: main strategies and tips for trading oil

— Written by Rich dvorak, Analyst of DailyFX.com

Connect with @RichDvorakFX on Twitter for real-time market insights