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There’s no market like the Oil market – Market Overview

There’s no market like the Oil market – Market Overview

Today the economic figure of IFO Business Climate of Germany for September has been published, slightly below expected, 93.4 vs. 93.8.

Although it shows a slight increase compared to the figure published last month, the growth rate has slowed down. Its composition shows that the improvements come from the export sector due to the recovery in foreign demand and that the domestic market is deteriorating concerning previous periods. This coincides with the reading of the PMI figures that were published yesterday.

Stock markets still do not have sufficient upward momentum in the face of uncertainty regarding the future evolution of the services sector globally. This sector is being very negatively affected by the restrictive measures implemented to combat the pandemic.

EUR/USD has definitively broken down support of 1.1690, waiting for the ECB to provide new clues to the market regarding future monetary policy decisions that, if confirmed, would pressure the euro to lower levels, as we pointed out in the analysis of yesterday.


The OIL market

Fundamental considerations

In this current situation of uncertainty and decline in domestic demand in almost all countries, one of the assets that is beginning to be adversely affected and could suffer more significant losses soon is OIL.

This month, both the IEA (International Energy Agency) and the OECD lowered their forecast on global demand for crude oil and derivatives. In the latest OPEC monthly report, they revised down global crude consumption by 700k barrels per day to 22.6M barrels per day by 2020.

This decrease in demand comes mainly from Asian countries such as India, which is being hit hard by the pandemic, and for the rest of the OECD countries, whose demand for transport fuel has dropped dramatically. In the report, the OPEC predicts that these decreases in global demand will continue well into 2021, obviously depending on the evolution of the disease.

To this must be added the return to production in Libya, which is reopening its oil wells after being closed due to the civil war that the country has suffered in recent years and seems to be coming to an end. A little over 500k barrels per day is expected to return to the market from Libyan production till the end of 2020.

And amid this scenario of increased supply with declining demand, OPEC is not discussing or considering restoring its production cut agreements that were agreed during the crisis of the past months that led crude to trade negative on the NYMEX futures market.

Technical considerations

OIL has been showing signs of weakness in recent days as a result of this fundamental bearish scenario.

It now is technically trading between the two moving averages of 100 and 200 days, without ever having been able to overcome the 200 days SMA decisively, currently at 40.01, and threatening to break down the 100-day SMA, which is at the 38.84 zone. A breakout of this latest moving average would lead to losses targeting the first intermediate resistance at 36.00.

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