Market Overview

The rise of crude prices in the beginning of this week was fueled by the global ease of the pandemic and hopes for a gradual economic recovery, as well as increasing demand for crude. The optimistic signals of increasing business activity embolden by US Federal Reserve's (Fed) Chair Jerome Powell who waved an expectation of economic recovery in the second half of 2020, helped oil prices.

China shows rising demand for crude after reopening the economy in April. The crude refining in China was up by 11% in April compared to March, and even 0.8% above April 2019 levels.

International Energy Agency (IEA) forecast the overall demand for 2020 could fall by 8.6 million bpd. It is far better than the previously expected level of 9.3 million bpd. World reserves will decrease by 5.5 bpd by the end of 2020 and the global supply of oil will decline by 12 million bpd in May, according to IEA estimates. The oil glut that was estimated at 25 million bpd in April has now reduced by 17 million bpd.

However, the rise of oil prices has withered as they approached a strong technical level of $36.4 per barrel on the Brent crude benchmark. The existing drivers seem not be enough to break through this resistance. The major reason for this are fears of a new second wave of the novel coronavirus spread as reports over new virus outbreaks in some Chinese provinces emerge. According to a Deutsche Bank survey of 450 experts worldwide, 55% of them expect the second wave of infection. Only 15% think the opposite.

Other events affecting prices are the trade wars against China on the background of accusations from the US of covering up important information about the origin or spread of the COVID-19 infection by China. All these negative factors retracted Brent crude prices back to $35 per barrel.

The composition of all these factors will be sketching crude price dynamics in the short term. It the Brent price will fail to break through the resistance of $36.4 it may drop to $30-31 per barrel. Breaking through April highs may steer Brent crude prices to $36.5-$39.7 area.

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Analysis and opinions provided herein are intended solely for informational and educational purposes and don't represent a recommendation or investment advice by TeleTrade.