According to Motilal Oswal, Oil prices could see a near-term correction if a recovery in fuel demand slows further, especially in the United States.
Motilal Oswal's report on Energy Weekly
Crude prices saw a back and forth movement for this week, trending in the price range of $37-$41 showing indecision in the markets. Price action is under pressure against a backdrop of rising Covid cases, which could be dragging down fuel demand. At times this week, the market also reacted to the extremely weak U.S. Dollar, which made the dollar-denominated asset more attractive to foreign buyers. The number of Americans filing for unemployment benefits hit 1.416 million last week, unexpectedly rising for the first time in nearly four months. Meanwhile, U.S. business activity increased to a six-month high in July. U.S. companies, however, reported a drop in new orders as new cases spiked across the country.
Oil prices could see a near-term correction if a recovery in fuel demand slows further, especially in the United States. There’s a huge concern that after the stimulus checks run out, there’s going to be a pullback in retail sales and definitely a pullback in travel by car if people are not going to be working. Major gasoline-guzzling states like Texas and California are facing resurgence in cases, squashing demand, while the OPEC+ alliance is preparing to unleash crude oil back into the market next month. It’s unclear what happens next. Oil prices have become trapped between two main competing market narratives, negative coronavirus news and the fact that oil prices are unsustainably low. Oil prices have been trapped at $40 as these two forces battle and the move from current price levels is expected to be downwards.
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