WTI looks to extend gains above $40 amid risk-on, US crude stocks draw

• Broad USD weakness ahead of key US NFP lends support.
• US states lockdown due to virus could threaten Oil’s upside.

Following a brief pullback to near $39.50 in early Asia, WTI (August futures on Nymex) is on a steady recovery mode and regains the 40 mark.

The US oil has been consolidating the recovery above the latter over the last hours, as investors turn cautious heading into the all-important US Non-Farm Payrolls data that will set the tone for the market in the coming weeks.

The renewed upside in the black gold can be attributed to the risk-on rally in the European equities, as they take the lead from their Asian and Wall Street peers. Global stocks firmed up after upbeat US Manufacturing data suggested a quick economic recovery.

The risk-on market profile weighed negatively on the safe-haven US dollar, further supporting the recovery in the USD-sensitive oil. A weaker greenback makes the dollar-denominated oil cheaper for foreign buyers.

The main catalyst behind the bullish bias in oil is the drawdown in the US weekly crude stockpiles, as reported by Energy Information Administration (EIA) on Wednesday. The EIA data showed that the US crude stockpiles fell 7.2 million barrels from a record high last week, far more than analysts had expected, per Reuters.

Also, the latest Baker Hughes data showed that the average US rig count for June 2020 stood at 274, down 74 from 348 counted in May 2020. This data could also render oil supportive, as markets digest the latest comments from the Russian Oil Minister Alexander Novak. Novak said that he hoped the global oil market will reach balance or shortage in July.

Looking ahead, traders also remain wary over the rising coronavirus cases in the US, especially after the lockdown measures re-imposed in California, as it could dent the demand for oil and its products.  

WTI technical levels to watch

“A horizontal line since the early June month, around $40.60, could lure the optimists beyond $40.00. Though, an ascending trend line from June 25, at $40.85 now, might challenge any further upside. Alternatively, a confluence of 100-bar SMA and a rising trend line from June 15, near $38.60, followed by another support line from May 27 close to $38.00, can restrict the quote’s short-term downside,” FXStreet’s Analyst Anil Panchal noted.

WTI additional levels