Forex Analysis & Reviews: 06.10.2020 - Oil's current growth does...

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06.10.2020 10:53 AM

Oil's current growth does not guarantee positive future prospects

The prices for crude oil benchmark brands jumped at a record pace on Monday which has not happened in the past four months. On Tuesday, the growth continues amid the news about the imminent adoption of the new stimulus package in the US. Note that this issue has been pressed for several months.

The price of futures contracts for Brent crude oil for delivery in December on the trading floor in London rose 0.51% or $0.21, which moved it to the level of $41.5 per barrel and fixed it above the strategically important mark of $40 per barrel. Thus, market participants have hope for long-term and steady growth. Monday's trading ended with an increase of 5.1% or $2.02, leaving the final price at $41.29 per barrel.

The price of futures contracts for WTI light crude oil for November delivery on the electronic trading platform in New York also went up by 0.46% or $0.18, which moved it to the level of $39.4 per barrel. Monday's trading also soared 5.9% or $2.17, leaving the price at $39.22 per barrel at the closing of trading.

The positive dynamics of the oil market began to manifest after another round of negotiations on the stimulus package in the US. Despite the fact that there is no clear progress towards an agreement, investors are increasingly convinced that a positive outcome of the negotiation process is simply inevitable. US President Donald Trump calls on the parties to quickly find a consensus and get rid of disagreements since such support measures are now very necessary for the state.

Meanwhile, the latest report on Trump's health condition state that he was discharged from the military hospital where he was placed immediately after testing positive for COVID-19. According to Trump's physicians, there are no threats to his condition, so he will continue treatment outside the White house.

Nevertheless, the situation in the oil market is far from ideal: the tension brought by problems does not simply go away. The main and very influential factor that puts pressure on oil continues to worsen. New outbreaks of coronavirus infections in the US and across the globe are continually recorded. In this regard, there are two scenarios for the development of events. The first is implemented in case of rapid growth in the cases out taking the scenario during the first wave. In this situation, authorities will have no choice but to introduce strict quarantine measures that will negatively affect the economies of countries that have not yet recovered from the spring shocks. The second scenario is possible only if the massive outbreaks can be contained. Then the quarantine measures will not be implemented in full, but only partly, and will not be so strict which will be easier for the economy to tolerate. Practically no one doubts the need to introduce restrictive measures.

Of course, the oil market will suffer greatly in both cases. The difference will only be in the level of cost that the quarantine measures will lead to. And it is definitely becoming clear that the forecasts regarding the recovery of demand for black gold by the end of the year will not be justified.

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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.