Market Overview

The very end of last week of August prepared an important starting place or the jumping-off point for oil prices. On Friday evening, a sharp attempt of the North-Sea Brent benchmark to dive properly down to reach at least $43.5 per barrel has been smothered by the immediate bullish counterattack, so the prices closed the previous week slightly above the $44.25 level. 

All this happened synchronously with a similar but rather caricature trial to lower the stock indexes of America and Europe for a while. Then the stocks quickly rebounded off the local bottom and soared to new skies on Monday. Therefore, oil prices have no other chance but seize a chance and join the movement to make a similar upside step above $45 per barrel. Tuesday morning produced such a high and unquestionable all-time peak in the S&P500 broad market index, near 3450 points and well above February's levels before the pandemic that it clearly reflected the confidence of the market majority in a further V-shaped recovery. 

The only issue is that stock exchanges have completed their V-letter, running ahead of the economic engine, as it is usually the case in the course of global macrocycles. But it looks like major stock indicators are pointing in the right direction, when they are reflecting the general consensus of the investment community and authorities that there will be no new lasting quarantines or lockdowns, the medicine efforts and vaccines will take effect soon, and that the beginning surge in business activity, retail sales and real estate purchases are not just random signs, but harbingers of global growth in production. Although the consumers' behaviour and labour markets are still under pressure, the growth vector itself is clearly visible. That means a pent-up demand for fuel resources, which is most likely going to be more fully manifested soon. 

Given the high innage of many oil reservoirs, especially in Asia, as the oil traders and manufacturers recently purchased a lot of cheap oil at dirt-cheap prices, processing these extra reserves is still underway, so the new additional demand for oil may be slightly delayed in the market. But the very expectation of this deferred demand to be fulfilled sooner or later, combined with the failed swing of the prices down to $43.5 and its rapid ascent above $45 per barrel are good logical reasons to now again test the area of $45.75-46.25 for the beginning. Of course, this summer ceiling may stand all the bullish fire again, as the oil prices are locked mostly in the same range for two months, but this is what traders call a "test" of the level, just because according to the results of the "test", the upper level always has the alternative to be broken or not. 

This result will appear under the influence of many different circumstances, among which the actual oil-related news is unlikely to determine the trend of affairs. The priority now is probably just the character of further uptrend developments on the stock indexes - an accelerating trend in the U.S. and European shares may inspire stronger bullish efforts on the oil market too, while any slowdown of the stock market’s upside movement, on the contrary, may cool the ardor of oil bulls very quickly. 

In addition, traders weigh production cuts in the U.S. Gulf Coast from tropical storms Marco and Laura. "Energy companies moved to cut production at U.S. Gulf Coast oil refineries on Monday after shutting 82% of the area's offshore crude oil output as the rare double-storm assault on key U.S. oil regions threatens to bring days of heavy rains and strong winds this week. Producers have shut more than 1.5 million barrels per day of Gulf Coast offshore oil production, nearly 14% of the nation's total output," according to Reuters reports. 

The U.S. federal regulators approved the use of blood plasma to expand virus treatment options that is also at least a temporary positive factor for both stocks and oil. Other good news is a message from the U.S. Trade Representative's Office that just reported the top U.S. and Chinese officials spoke by phone on Monday and "saw the progress" over the "phase one" trade deal agreed in the beginning of the year, with "both sides are committed to the success of the agreement". China's commerce ministry said in a statement there had been "constructive dialogue". "This is consistent with market expectations of the Phase 1 deal staying healthy and likely to hold even as U.S.-China tensions flare up along non-trade dimensions - technology, access to capital, geopolitics," Citigroup analysts said in a research note. 

The American Petroleum Institute (API) is going to release another weekly report on inventory levels of U.S. crude oil, gasoline and distillates stocks at 20.30 GMT today, and the portion of the U.S. Energy Information Administration's (EIA) statistics will come at 14.30 GMT on Wednesday. The crude oil stockpiles in the United States would likely drop for a fifth straight week, a preliminary Reuters poll showed on Monday, and it could additionally support the price pressure at a proper moment.

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