31.07.202012:11 Forex Analysis & Reviews: Oil coped with a difficult situation and moved to growth

Exchange Rates 31.07.2020 analysis

The cost of crude oil increased at the beginning of the last business day this week. The recovery process has started, which means that there will be growth in the near future, the limits of which are still unknown. The reason for the excitement of market participants was the news about the possible extension of the stimulating financial policy in the USA, which is hinted at by extremely unfavorable statistics on the level of GDP. The data showed that America's gross domestic product posted a record contraction. In this regard, we will need actions that neutralize the negative impact, and these may well be recognized as monetary incentives, which some members of the government have called for abandoning.

Today, the price of futures contracts for Brent crude oil with delivery in September on the trading floor in London began to rise: the growth has already amounted to 0.47%, or 0.2 dollars. The cost has moved to the region of $ 43.14 per barrel. It should be recalled that yesterday's trading on contracts expiring today ended with a serious decline, which amounted to 1.9%, or $ 0.81, while the price at the close stopped at $ 42.94 per barrel.

The price of futures contracts for WTI crude oil for September delivery on the electronic trading floor in New York in the morning also increased by 0.23%, or $ 0.09, which allowed it to rise to $ 40.01 per barrel. Yesterday's trading was not so successful: at the closing of the session, a deep decline in the value of contracts was recorded immediately by 3.3% or $ 1.35. This caused them to fall to the level of $ 39.92 per barrel, which is below the strategically and psychologically important level of $ 40 per barrel. In addition, this price has become the lowest in the last three weeks, which made traders a little worried.

If there are no significant cataclysms today, the combined cost of Brent crude oil based on the weekly average may reflect the rise, which will be the fourth in a row. At the same time, WTI will move to restore the lost advantage and close in the "green zone'' for the third week in a row.

On the other hand, investors continue to be bombarded by global problems this year. And in fact, there is one such problem so far – the coronavirus pandemic. They are most concerned about it, since it invariably affects almost all other spheres of the economy. The concern in the market is due to the fact that the growth of COVID-19 infection does not end, and it is gaining momentum again in some regions. All this will ultimately inevitably lead to a reduction in demand for fuel, and hence, for petroleum raw materials. Strong pressure is exerted by the fact that major oil refiners of the world have received approval from OPEC to increase production in accordance with a contract signed in April to reduce production.The excess of black gold on the market has never caused such decadent emotions among participants. At the very hint of this, investors start to panic.

Thus, without considering the geopolitical and epidemiologically difficult situation, the demand for raw materials has become the main aspect of the attention of traders. The latest statistics on the overall scale of economic damage from the pandemic only reinforce the impression on investors who are already struggling to find positivity.

At the same time, the statistics from the United States were not very good. According to the data, the country's GDP for the second quarter of this year plummeted immediately by 32.9% on a yearly basis. Such a decline has not yet been recorded in the entire history of tracking this indicator. Of course, the preliminary forecasts of experts did not contain anything inspiring in this regard and were even more than pessimistic. It was expected that there will be a reduction of about 34.1%, and according to some data, 34.6%. However, the very fact of such a significant subsidence is important to us, and the difference in numbers between assumptions and reality is no longer felt so strongly in this scenario.

The unemployment rate in the United States is also rising. Last week, the number of new beneficiaries increased by 12 thousand people; thus, reaching the level of 1.434 million people. At the same time, preliminary forecasts spoke of a possible growth to the level of 1.45 million people. However, the difference between potential and reality is not too big here too.

In addition, one of the disturbing news yesterday was the speech of the American leader, who proposed to postpone the main event of this year in the country - the presidential elections - to a later date. The reason for this turn of events, among other things, was the same coronavirus pandemic, which the country has not yet been able to cope with.

All of the above suggests that there is no reason to believe that oil will have great growth opportunities in the long term. The dynamics of supply and demand is too unstable, so the increase in the price of black gold will depend on other factors in the market.

Maria Shablon,
Chuyên gia phân tích của InstaForex
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