FX.co ★ Oil's negative correction not a change in trend

The price of crude oil on Friday turned to a negative correction. The mood of market participants is generally very restrained and not too confident, which makes growth seriously limited. The pandemic crisis continues to put pressure on the market. Investors still do not understand how the growth in the number of new patients can affect the oil products market. Initially, the level of fear was too high, nonetheless, the price of black gold immediately recovered. Today, you can hear more about the uncertainty, but it scares traders much less than the first months of the crisis.

Analysts began to say that crude oil has already survived its worst times and the lowest point of decline is already behind. This means that now we are waiting for growth and during which there will be a correction similar to the one that the market faced this week. Meanwhile, supply and demand are also recovering and are gradually finding a balance.

The fairly good pace of recovery last Wednesday was announced at OPEC at a ministerial meeting. The organization made a very positive conclusion that oil demand is steadily moving towards its recovery, which means that the contract to reduce oil production can be ratified further according to plan. In this regard, from August of this year it is planned to increase the production of raw materials by 2 million barrels per day. However, there are some problems associated with those parties to the contract who have not fully fulfilled their previous obligations under it. They were ordered to submit a production compensation plan in the shortest possible time and bring it to the proper level.

At the same time, most experts consider the fears regarding new fluctuations in demand for raw materials unfounded, since demand has already strengthened sufficiently, and new volumes of raw materials in the market will not be able to shake it. Moreover, they will be quickly eliminated, since a certain shortage of oil products has arisen in certain regions.

On the whole, the gradual removal of restrictions on oil production fits into the concept of restoring global demand for raw materials. The market is confidently returning to its previous performance, and the price of black gold is gradually growing.

The price of futures contracts for Brent crude oil for delivery in September at a trading floor in London fell slightly to 0.39% or $0.17, which caused the brand to move to the mark of $43.20 per barrel. Recall that at the close of trading on Thursday, there was also a slight decrease in price by 1% or $ 0.42, and the price level stopped at $ 43.37 per barrel.

The price of futures contracts for WTI light crude oil for delivery in August on an electronic trading platform in New York also slightly decreased by 0.22% or $0.09, which forced it to move to the area of $40.66 per barrel . Thursday's trading was also in the negative zone for the brand, and at the end of the session it became cheaper by 1.1% or $0.45, which moved it to the level of $40.75 per barrel.

Today, it is becoming clear that crude oil is preparing to confidently take the next strategically and psychologically important mark of $ 43 per barrel. Nevertheless, so far this does not look so confident against the background of fears periodically arising from the second wave of coronavirus infection. One way or another, oil has already tried to break through this level earlier, which at that time was unsuccessful. Today, the market situation is more than favorable.

There are at least three factors that indicate the formation of a new price peak in the raw materials market. The first is demand, which has shown good strength and, most importantly, was able to return to its pre-crisis positions. Of particular support is the fact that supply in the raw materials market is also rapidly declining, and the resulting deficit will only spur prices to growth.

The second factor is a more restrained attitude towards the possibility of a repetition of the situation with the global coronavirus pandemic. Market participants stopped being scared of every rustle and began to soundly analyze the situation, which, however, turned out to be much more positive than previously thought. The main gain today is happening in the United States of America, and even due to the physical increase in the number of tests for COVID-19. And this may indicate not a new wave of the pandemic, but its unfinished first stage.

The third factor is the still unchanged bullish trend, which directly indicates a continued increase in oil prices. Indirect evidence is that the correction goes smoothly, without sharp movements down and rapid drops in value.

All this, most likely, becomes evidence of the consolidation of crude oil at around $ 43 per barrel. It is from this mark that black gold will build on its desire to occupy the next peak. Moreover, the next strategic point of $ 48 per barrel has already been outlined, which can be completed in the near future.