Market Overview

Crude prices have stabilised over the last week of July within the range of $43.2-44 per barrel of Brent crude. Oil prices are balanced by several counteractive factors.

Crude output is rising in countries that are not linked to the OPEC+ deal, namely the United States. The number of oil rigs is rising in the U.S. for the first time since March. According to the recent data published by Backer Hughes, crude output rose by 0.1 million barrels per day to 11.1 million bpd. Rising production curbs prices from a further climb.

Newly emerged signs of U.S.-China tensions after closure of several consulates in both countries are also pressuring crude prices. The market seemed to be nervous as crude production cuts by OPEC and its allies will be gradually lifted from 9.7 million bpd to 7.7 million bpd starting on August 1. Because of some countries that failed to meet their personal production quotas and are forced to compensate overproduction in August and September, the market is planned to have an additional 1.4-1.6 million bpd of crude supply.

However, some factors are supporting crude prices. The global pandemic situation is gradually easing, and that creates an additional demand for crude. An optimistic mood is generally prevailing in financial markets, and this favours risky assets with oil futures among them. The VIX Volatility index continues to decline from its March peak of 85.5 points to 33.7 points in mid-July and to the 25.44 mark recently.

Another factor is the weakening of the U.S. Dollar due a slower than expected economy recovery. Wednesday is expected to be the major day for oil this week, as the data concerning crude reserves in the United States will be published, and the Federal Reserve (Fed) will announce its view of the monetary policy for the near-term. A dovish rhetoric by the Fed is expected to continue with some possible new stimulus measures. This is highly likely as the U.S. monetary policymaker may consider it vital to tackle the lingering crisis caused by the pandemic. In this case, crude prices may gain additional support.

Investors may also pay attention to the U.S. second quarter GDP data that is scheduled to be released on Thursday. Backer Hughes statistics of oil rigs in the United States will also be in focus on Friday.

Such controversial drivers may seize crude prices in the range of $42.3-44.8 per barrel of Brent crude this week.

Disclaimer:

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