International oil prices fluctuated and closed down on Tuesday. The new round of economic stimulus bills in the United States has weakened the expectation of a strong recovery in crude oil demand due to stimulus measures, and the continued increase in coronavirus infections has also clouded the demand outlook. In addition, the dollar’s rebound from multi-year lows has also put some pressure on oil prices. A weaker U.S. dollar usually helps improve demand, as it will make crude oil cheaper for global buyers. As of the U.S. close, September WTI crude oil futures in the United States closed down 0.59 US dollars, or 1.42%, to 41.10 US dollars per barrel, with the highest reaching 41.91 US dollars per barrel and the lowest falling to 40.83 US dollars per barrel; Brent crude oil September futures closed down 0.19 The US dollar, or 0.44%, was quoted at US$43.24/barrel. The highest intraday hit US$43.79/barrel and the lowest fell to US$42.99/barrel.
Although Republican senators and White House representatives announced a $1 trillion stimulus package after several days of negotiations, the Republican Party has not fully resolved the differences in the scale and scope of federal anti-epidemic supplementary expenditures. The Speaker of the US House of Representatives Pelosi believes that the Republican economic stimulus bill is unlikely to be passed in the Senate. Regarding McConnell’s remarks at the earlier press conference, Pelosi told reporters, “What McConnell said today sounds like someone who is not interested in reaching an agreement.” At the same time, White House staff Chief Mark Meadows said that Democrats said they were unwilling to negotiate an extension of the $600 weekly unemployment benefit. Discussions on the new crown virus rescue bill are “still in the second round.” When asked whether the piecemeal approach to expanding aid is outdated, Meadows said: “I don’t know if anything has been explicitly ruled out.” John Kilduff, a partner at the New York energy hedge fund AgainCapital LLC, said: “People are stimulating Washington. The measures are worried, which is vital to the oil industry and supporting demand, especially gasoline demand.” He added that the longer the negotiations are delayed, the greater the pressure on market sentiment.
When the partisanship in the United States broke out, the number of coronavirus infections in the United States had exceeded 4.3 million, nearly 150,000 people died, and tens of millions were unemployed. With the continuous and substantial increase in coronavirus cases, investors worry that the US economic recovery may stall, which will curb fuel demand in the world’s largest energy consumer.
In addition, the U.S. dollar rebounded strongly from its two-year low during intraday trading, which has become one of the key factors that exert certain pressure on oil and other commodities priced in U.S. dollars. However, as the United States is heading towards the fiscal cliff and consumer expectations have fallen sharply, it reflects anxiety about the increase in new coronary pneumonia cases, the reversal of the restart strategy, and concerns about the financial impact of the end of the US$600 weekly federal unemployment benefit. All this laid the foundation for the dovish tone of the Fed meeting, which will undoubtedly strengthen people’s confidence that the US economy will face a very long and rugged road. The market expects the Fed to introduce more stimulus measures, which limits the downside of oil prices.
US President Trump recently stated that Pfizer’s research and development of the new crown pneumonia epidemic is moving in a positive direction, and the vaccine may be approved “soon”. Fauci, director of the National Institute of Allergy and Infectious Diseases, said that the emergence of a new coronary pneumonia vaccine by December is “realistic.” This slightly alleviated market concerns about the coronavirus, and market sentiment improved slightly.
According to the latest data from the American Petroleum Institute (API), as of the week of July 24, API crude oil inventories decreased by 6.829 million barrels to 531 million barrels, and the previous value increased by 7.544 million barrels, which is expected to decrease by 1.95 million barrels; Cushing crude oil inventories increased by 1.144 million Barrels, the previous value increased by 716,000 barrels; gasoline inventories increased by 1.083 million barrels, the previous value decreased by 2.019 million barrels, and the expected decrease was 967,000 barrels; the refined oil inventory increased by 187,000 barrels, the previous value decreased by 1.357 million barrels, and the expected decrease was 333,000 barrels. Although API data shows that US crude oil inventories have fallen more than market expectations, considering that the data recorded an unexpectedly large increase last week, and the consumer demand for gasoline is also doubtful, international oil prices fell after a short rise after the data was released.
Energy consulting firm RystadEnergy expects the oil market to be oversupplied in the next four months. Tariq Zahir, a global macro program management member of TycheCapital Advisors LLC, a New York commodity trading consulting firm, said that the current demand for crude oil has definitely become weaker, whether it is driving travel or the aviation industry. Ryanair, Europe’s largest low-cost airline, lowered its annual passenger transport target by a quarter on Monday, and is concerned that the second wave of new coronavirus may further lower expectations.
Next, the market focus turned to the US Energy Information Administration (EIA) weekly crude oil inventory report. Crude oil inventories are expected to remain unchanged for the week ending July 24. Crude oil inventories increased by 4.892 million barrels to 536.6 million barrels in the previous week, the lowest level since the week of January 3. If the data shows a downward trend, it may help oil prices continue the recent rebound. Of course, investors will continue to pay close attention to developments in international trade relations and coronavirus-related developments and their impact on the global market to find any short-term trading opportunities in oil.
The U.S. dollar index gapped and opened low on Tuesday, after a low point of 93.455, oscillating higher, but after reaching the psychological barrier of 94.00, it met resistance again. It fell from the high of 93.969 and continued its downward trend since the end of June. The demand for hedging has declined. At the same time, due to the tension between China and the United States and the US presidential election, investors avoided the US dollar. In addition, the United States’ handling of the new crown pneumonia epidemic has also put pressure on the US dollar. Finally, the Fed’s easing of monetary policy is also a key factor in the weakening of the dollar.
The dollar may eventually lose its luster. Morgan Stanley analyst Lisa Shalit summed up the three factors that have pushed the dollar weaker recently. First, the number of infections in Europe and the United Kingdom is rising, and their currencies are also appreciating. America’s largest trading partners have benefited from large-scale fiscal stimulus and the relative stability of the trajectory of the coronavirus infection. The European Union passed its first joint stimulus plan in July this year, which eventually crossed the threshold of fiscal integration, which may promote economic growth in the region and push up the euro. With the US Treasury bond yields currently approaching the levels of other developed countries, global interest in investing in US Treasury bonds may weaken, which will put pressure on the dollar. Second, the money supply in the United States has grown rapidly. After the flu pandemic caused the economy to suddenly stop contracting, the Fed’s monetary easing policy and the US fiscal expansion are unprecedented. In the long run, the rapid expansion of debt and deficits will lead to a depreciation of the dollar and possibly inflation. Finally, the dynamics of trade and geopolitics are changing. After five years of improvement, the US current account deficit is still growing, and it may be close to 4% of GDP next year. At the same time, geopolitical tensions are increasing, the United States’ global leadership is weakening, and China’s economic status continues to rise. This dynamic may cause central banks to restructure their currency reserves, sell some US dollars, and possibly buy the yuan. This may also cause the dollar to weaken.
The US Consumer Confidence Index of the World Federation of Large Enterprises in July fell slightly from 98.3 in June (a slight upward revision from 98.1) to 92.6, which was lower than market expectations of 94.5. The consumer expectations index fell from 106.1 to 91.5, the current conditions index rose from 86.7 to 94.2, and consumer inflation expectations fell from 6.6% to 6.1%. Consumer confidence fell in July due to the outbreak of the coronavirus, especially in several southern and western states.
In July, the Fed’s fifth-largest region’s manufacturing activity expanded moderately, and the Richmond Fed’s comprehensive index of manufacturing activity survey rose to 10 from 0 in June. This is the first time it has been above zero since March. “The index of shipments and new orders indicates that the economy is expanding, while the third component-employment-is still slightly weak,” the press release said. “The local business environment index has risen further, indicating that confidence has improved. The interviewees are optimistic that the situation will improve in the next six months.”
The Federal Reserve announced on Tuesday that it has decided to extend loan instruments originally scheduled to expire on or about September 30 to December 31. The Fed explained in its press release: “The three-month extension will help potential fund participants to develop plans and ensure that the fund will continue to be available to help the economy recover from the coronavirus pandemic. The committee’s lending facility provides the key The support of the government has stabilized and significantly improved market operations, and enhanced the flow of credit to households, businesses, state and local governments.”
At 2 o’clock in the morning Beijing time on Thursday, the Federal Reserve will announce its July interest rate resolution. Investors need to pay close attention to the monetary policy statement to learn about the latest views of Fed officials on the economic outlook. We expect the Fed may provide some policy signals, and the focus will be on forward-looking guidance. Although the Fed is concerned about current trends in financial markets, it may take some time to get more clear guidance. Although the official guidelines in the Fed’s statement this week may not change much, Powell’s speech at the press conference may herald future plans. The Fed may announce the official outline of its policy strategy at its September meeting. A clear message from the Fed is that until inflation exceeds the target, the Fed may not adjust its policy, but it may adjust the short-term market yield ceiling. Taking into account the poor effect of the loan program, and if the balance sheet contraction continues, the Fed will broaden its commitments. The Fed will mention these issues in the press conference, but overall, it is expected that the Fed will release a strong signal that it will maintain its easing policy. In view of the Fed’s ability to further expand its balance sheet, the Fed’s guidance is completely reliable and will therefore have a significant impact on limiting the nominal rate of return. The real 10-year Treasury bond yield is close to a record low and is expected to fall, which will further pressure the US dollar.
U.S. crude oil
Daily chart: The Polyga Channel is flattening, and oil prices are hovering near the middle rail; the 14- and 20-day moving averages are flat; the stochastic indicator is higher.
4-hour chart: PolyPlus channel converges, oil prices are developing below the middle rail; 14 and 20 moving averages are flat; stochastic indicators are falling.
1-hour chart: PolyPlus channel converges, oil prices are developing below the middle rail; 14- and 20-hour moving averages are bearish; stochastic indicators are lower.
Summary: The daily oil price is expected to fluctuate in the range of 39.95-42.50. You can try to sell high and buy low. The above resistance focuses on the July 28 high of 41.90. After the break, it will rise to the July 21 high of 42.50, then the March 1 low of 43.50, the February 28 high of 43.80, and the March 2 low of 44.40. And the low of 45.60 on March 5; and the support below will pay attention to the low of 40.45 on July 27. A break below will test the low of 39.95 on July 20, then the low of 39.50 on July 13 and the low of July 14 39.05, as well as the low of 38.50 on July 10 and the low of 37.50 on June 29.
Brent crude oil
Daily chart: PolyPlus channel converges, oil prices are hovering near the middle rail; 14- and 20-day moving averages are flat; stochastic indicators are moderately higher.
4-hour chart: Poly plus channel declines, oil prices are struggling near the middle rail; 14 and 20 moving averages are flat; stochastic indicators are rising.
1-hour chart: Poly plus channel declines, oil prices are hovering near the middle rail; 14- and 20-hour moving averages decline; stochastic indicators decline.
Summary: It is expected that the daily oil price will fluctuate in the range of 42.35-44.75. You can try to sell high and buy low. The upper resistance focuses on the July 24 high of 43.90. The breakout will lead to the July 23 high of 44.75, followed by the March 6 low of 45.15 and the March 9 high of 45.45, as well as the June 20, 2017 high. 47.20 and the low of 48.90 on February 28; and the support below will pay attention to the low of 42.80 on July 24. A break below will test the low of 42.35 on July 27, then the low of 41.80 on July 14 and the low on July 10. 41.30, as well as the low of 41.00 on July 1 and the low of 40.00 on June 29.
Follow on Wednesday:
US June wholesale inventory
US June Existing Home Sales Pending Index
US EIA weekly crude oil inventory report
Federal Reserve Monetary Policy Meeting