Market Overview

Risky assets inspire crude prices. The upward trend in Brent crude benchmark lifted prices up to the $46 per barrel mark. This week Brent crude attempted to conquer important resistance level of $46.2 per barrel that was pinned before as a post pandemic high. However, major drivers of crude rally are beyond oil market itself. The primary driver is the Federal Reserve (Fed) intention to skip the inflation target of 2% while maintaining control over interest rates. That means interest rates may remain at ultra-low levels for a long term even if the inflation will exceed 2%.

“Cheap” money are nudging investment both in production and in speculative operations. That is positively affecting crude prices. Moreover, such monetary policy from the Fed facilitates weakening of the Greenback. The U.S Dollar index fell below 92 points this week with a slight rebound to 92.6 points on Wednesday afternoon.

Hurricanes in Mexican Gulf have provided temporary support for crude prices too. Almost half of crude production in the Gulf and crude refining is still suspended. However, such weather factors are short-lived. It would lose its influence this week already as hurricanes fade.

On the other hand, the rise in crude prices are curbed by sluggish increase in demand for “black gold” after acute pandemic phase. U.S. Energy Information Administration (EIA) and OPEC believe the demand would not be restored to 2019 level even in 2021.

Crude supply in the opposite is rising thanks to high prices and rising OPEC+ production quotas by two million barrels per day that are effective since August 1. Crude production in the United States in June rose to 10.4 million barrels per day or by 4.2% compared to May figures, according to EIA report. In this regard crude reserves data in the U.S. that is expected to be released on Wednesday may certainly attract close attention. According to API data crude reserves fell by 6.36 million barrels while analysts expected modest 1.95 million barrels decline.

The dynamics of crude prices this week may be uncertain. Brent crude prices may hoover between technical support of $44.6 per barrel to $46.6 resistance level.

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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.