Crude oil prices initially reversed their decline overnight after the Energy Information Administration reported that commercial oil stocks trended down due to a large draw in products, with gasoline stocks back down to their 5-year average.
Yet it was all for naught after Fed Chair Jay Powell pancaked global markets with a discordant economic warning and a penetrating call out for more stimulus to congress, both of which brought the oil price recovery to a screeching halt with nervous investors seeking out the US dollar's safety. Indeed, the stronger US dollar is the clearest signal that traders have little to no interest in holding risk, especially in growth assets like oil.
With the oil market in bear mode, any news flows that will be perceived threatening to the recovery will be sold.
Additionally, some of the angst in oil markets this week can be directly attributed to concerns about more stringent social mobility restrictions as coronavirus continues to spread worldwide. With the oil market's sensitivity to coronavirus concerns, headwinds will likely emanate from news flows around Covid, which could impede topside price action for now.
The reimposition of a full-scale circuit breaker or wide-sweeping mobility restrictions in developed economies is unlikely. But the back and forth attempts to balance the pandemic’s healthcare concerns while still keeping the economy open are likely to play out to unsettled price action until a vaccine becomes available.
Soft lockdowns are a double-edged sword as empowering people to social distance could keep the economy open. Still, the piper could come knocking if the curve spikes again.
I still think oil prices can shift both ways in this environment, especially with the bullish EIA data inputs, but there’s no easy trade out here so you need to stay on your toes.
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