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What's Next for Crude?

Oct 05, 2020
What's Next for Crude?

Since the crude oil market took a dive from the mid $40s to the mid $30s last month, it has attempted to stage a rebound. The initial rebound took prices back above the $40 per barrel level, topping out just short of $42 per barrel. The market quickly resumed its downtrend, however, and prices declined toward $36 per barrel before finding some support again.

The oil market is sharply higher today, however, as a lower dollar, stronger stocks, stronger gasoline demand, and other factors boost buying interest. To negate recent chart damage, the market will need to rally through $40 per barrel on the upside and maintain trade above that level. Trade above $40 could force more of the shorts to cover their positions, and that short covering could help fuel buying interest on the upside in the weeks ahead.

Like several other widely followed key markets, crude oil’s fortunes are likely dependent on how the economy repairs itself amid the ongoing COVID-19 pandemic. The recent positive diagnosis from President Donald Trump and other important party figures may not assist in easing tensions over the virus but could cause a further panic that could eventually hit stocks and other risk assets. From a simple supply/demand perspective, there does not seem to be much to cheer about as many Americans look to stay home and avoid going out. Although this could change, it likely will not change significantly until a vaccine is developed and made available for distribution. In other words, it could be months or possibly even years before things start to get back to “normal.”

As markets and investors worry over the health of President Trump, hopes for further stimulus measures out of Washington D.C. are on the rise. Another round of spending could help ease the current burden faced by businesses and individuals alike and could spur further demand for oil and related energy products.

One other major issue that has the potential to affect crude oil prices is the quickly-approaching U.S. Presidential election. With just under a month to go, the Democratic lead has reportedly widened, and many investors are likely already preparing their portfolios for a Biden win. President Trump has previously shown, however, that he can never be counted out, and an election victory is still a possibility for the Republican. A Trump victory may keep some downside pressure on oil prices as investors consider his deal-making talents and his disdain for regulation. A Biden win, on the other hand, could potentially lead to higher prices as investors worry over his ability to make deals and the potential for further market regulation measures being implemented.

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