Forex Analysis & Reviews: 03.11.2020 - Crude oil prices trades in...

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03.11.2020 11:15 AM

Crude oil prices trades in green zone with weak positive dynamics

Crude oil prices continue to rise on Tuesday morning after recording a rapid jump on Monday, but the positive dynamics are rather weak. The market already began to receive signals that OPEC is considering the option of refusing by the end of this year from the previously planned lifting of all restrictions on oil production in countries that have ratified the reduction agreement. Due to the difficult situation on the black gold market and a rather significant increase in raw material production in certain countries, OPEC may make adjustments under the current contract by the end of this year.

Note that the OPEC agreement on the reduction of oil production in the countries that signed it, suggests that in January next year, production should increase by another 2 million barrels per day. For the time being, the Russian Federation remains on the side of this option, the country's Ministry of Energy claims that there are no problems in the global sense and no adjustment of the agreement is required yet.

However, this opinion is not shared by all states. There are those who express serious concern about the current uncertainty in the market. In particular, they propose to revise the existing agreement towards an even greater reduction in production by the beginning of next year. However, not everyone is ready to do this. The only option that seems likely to suit most is the extension of existing production commitments until the market stabilizes.

The price of futures contracts for Brent crude oil for delivery in January on the trading floor in London slightly added 0.21% or $0.08, which sent it to $38.89 per barrel. Monday's trading ended with an increase of 2.7% or $1.03, which left it at $38.97 per barrel, moving away from its minimum limits.

The price of futures contracts for WTI crude oil for delivery in December on the electronic trading platform in New York also showed a restrained positive trend. It increased 0.05% or $0.02 per barrel, which sent the price at $36.79 per barrel. Monday's trading session ended with an increase of 2.9% or $1.02, which left it at $36.81 per barrel.

However, new negative news enters the market that can change the emerging positive trend. In particular, investors may be seriously concerned about another significant jump in coronavirus infection in European countries and in the US. Even more negative can be caused by restrictive quarantine measures that continue to be introduced in different countries. Perhaps, they will cause the greatest damage to the demand for oil raw materials. Analysts say that demand in the near future may be in the range of 88-89 million barrels per day, which is about 10% lower than last year.

At the moment, limiting the production of black gold is all that can be done, but such measures will only be temporary. The key point for markets is to stabilize the demand for raw materials, and this point is hardly recognized by some. In this regard, it is not necessary to wait for the long-term growth of oil prices. Any price increase will be temporary for the time being.

This week will not be the easiest for the raw materials market due to the US presidential elections. The vote count and the announcement is still ahead and hese events can seriously destabilize the markets.

Meanwhile, the growth in demand for hydrocarbons from China poses a positive factor in the oil market, which may provide support to the market in the near future. Recall that China's Minister of Commerce decided to expand quotas for the use of imported oil by non-state companies in the country by about 20% next year. This means that the maximum Chinese demand will increase by another 823,000 barrels per day.

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*Disclaimer: The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.