Crude oil surges 6 pc as demand concerns ease

Prices have more than made up their sharp fall suffered on Friday.

Both major crude contracts rose by around $2.50 dollars each, representing gains of just over 6.5% for WTI and slightly lower for Brent. Investors appear to have warmed towards risk assets in general at the start of this week. Indeed, oil prices have risen alongside other risk-sensitive assets such as stock indices, as well as natural gas, which was more 13% higher at the time of writing.

Apart from news of Donald Trump potentially being discharged from hospital as early as today, there is growing optimism that a US fiscal stimulus package will soon be agreed by the two sides amid growing signs that the pace of the economic recovery post lockdown has slowed down quicker than expected. Investors are hoping that with more stimulus, the US economic output should rise and thus provide tailwind support for oil prices as demand for crude oil continues to recover post lockdown. Adding further support to oil prices was this morning’s data showing the economic recovery in Europe was still ongoing, despite the resurgent coronavirus cases there. The services PMIs across Europe (excluding Spain) pointed to improving conditions, albeit from depressed levels, while Eurozone retail sales turned out be much stronger than expected in August. Investor confidence didn’t take as big a knock as had been expected by the resurgent coronavirus cases, judging by the latest Sentix Investor Confidence reading.

While in the shot-term prices may fluctuate around current levels, the longer-term outlook for crude oil prices remains mildly positive in my view, regardless of any short-term volatility. This is mainly because of the fact the OPEC+ group will continue to pump oil at reduced levels for a while yet following their historic cuts earlier this year. Meanwhile, as the global economy slowly recovers from COVID lockdown, demand for crude oil should rise and reduce any non-OPEC supply surplus. So, we are heading towards a tighter crude oil market. But as soon as prices rise to levels where producing more becomes viable for US shale producers, the global surplus will likely rise again and cap the price gains. But at current levels, I certainly feel more gains could be on the way in the short to medium terms.

Meanwhile the short-term technical outlook on oil remains a bit murky despite today’s big bounce. WTI needs to clear THIS band of trendline resistance before we can turn decisively bullish on prices: