Market Overview

Crude prices slipped up in the middle of the week as risk on sentiment weakened. Since the beginning of this week rising appetite for risk lagged behind higher stock markets and crude prices. Brent crude benchmark climbed from $39 per barrel to almost $43 amid optimism as U.S. President Donald Trump quickly recovered from COVID-19, which he tested positive for last Thursday. Another reason for optimism was the assumption that  negotiations over a coronavirus relief bill up to $2.2 trillion was seemingly reaching an end .

However, Trump himself suddenly reversed the positive vibe by saying that negotiations over the disputed bill will be resumed after the presidential election in November. Probably he assumed that such stimulus measures are in favour of his Democratic opponent Joe Biden since the Democrats have approved the relief bill in U.S. Congress. Joe Biden has significantly augmented his winning gap over Mr Trump recently after last week’s presidential debate in Ohio. Perhaps in response to this, Mr Trump announced via his Twitter account late on Tuesday that he will approve the relief bill soon after his presidential victory. A very strange escapade by the acting president. Trump acknowledges that the relief bill is much needed to bolster economic recovery, but he probably doesn’t want  it to seem like the Democrats, and especially Joe Biden, took sole initiative for the bill.   Will this move increase Mr Trump’s chances for a victory? If Biden wins, the disputed bill will most probably be passed anyway. But the bill is urgently needed as the second wave of coronavirus infections is spreading over the United States, not in another month’s time. It is hard to assume what Trump is thinking about, but his support of the bill may score some additional loyalty points from the American electorate.

Nevertheless, risky assets turned red on the change of Trump’s rhetoric. It seems that investors are losing hope for swift stimulus measures that were already priced in. U.S. stock indexes dropped by 1.3-1.5%. Brent crude prices fell to a $42 per barrel level.

Another negative reason for crude came after American Petroleum Institute (API) reported crude reserves rose last week by 950,000 barrels vs a decline of 800,000 barrels a week before. Crude prices may react on the U.S. Energy Information Administration official crude reserves report that will be released later today. The Federal Reserve’s Federal Open Market Committee Minutes, that are also expected to be released on Wednesday, may also contribute to the movement of crude prices.

Technically Brent crude prices are locked within a range of $41-43 a barrel. However, a recent breakthrough technical support below $39 a barrel may hint to a possible downward trend, and the current upside rise may represent a pure technical correction. Moreover, the upside swing of Brent crude prices has not reached the recent high of $43.8 a barrel. So, a decline of Brent crude towards $41 a barrel and lower may be considered as a possible scenario.

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.