Trump’s Covid-19 diagnostic highlights bears on crude, energy and commodities

Sat, 03 Oct 2020 – 05:50


RAW prices, already possessed by bears amid a supply glut and an elusive U.S. stimulus package, were hammered on Friday as uncertainty reigned over news that U.S. President Donald Trump has been tested positive for Covid-19.

Brent, the global benchmark, and US West Texas Intermediate (WTI) crude each lost 2.9% to US $ 39.80 and US $ 37.60 a barrel respectively around noon in Asia on Friday. It was about two hours after Mr Trump tweeted that he and First Lady Melania Trump had tested positive for the coronavirus and would begin a period of quarantine.

Both benchmarks have fallen more than 7% since Monday, their second straight week of decline.

Jeffrey Halley, Oanda Senior Market Analyst for the Asia-Pacific region, said: “The big picture is of declining consumption and plentiful supply in the market, which halted the rally in oil and threatens to bring prices down again. Covid-19 is another key to this work. “

He added: “Much will now depend on the spread of Covid-19 to the wider U.S. government and Senate leadership, a situation investors should watch out for over the next few days. The potential government paralysis would be a strong negative. for financial markets. “

Oil prices started the week on their back, led by fears of a demand deficit as the world continues to grapple with the tough trade-offs between the economy and tackling the virus.

Another drag: Renewed fears of a resurgence of the virus in several European countries, with the winter flu season looming, could hamper reopening efforts and hurt demand for energy.

Rising crude production in Iran and Libya – even as the Organization of the Petroleum Exporting Countries and its allies (OPEC +) ease production brakes in the coming months – also poses a viable threat to everything. rebalancing of the oil market.

The stronger US dollar, whose sharp decline in July and August was a key pillar in supporting crude prices, compounded the factors that pushed Brent below the key psychological bar of US $ 40 per barrel.

The Brent technical picture looks “perilous” at the moment, Halley said, adding that a drop of US $ 39 per barrel could signal further losses to US $ 37 and US $ 35 per barrel.

Amid grim macroeconomic data, the political posture or stand between United States House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin on a back-up plan dashed hopes over the weekend of ‘a bipartisan bill. Markets had previously anticipated a pre-election stimulus deal after the last round of negotiations collapsed in early August.

In the absence of favorable fundamentals, such a posture makes no difference to the oil markets, said Stephen Innes, chief market strategist at AxiCorp. He added that crude prices would only increase if a budget deal was reached.

This possibility seems remote to some. Mr Halley said Mr Trump’s diagnosis further reduced the likelihood that a relief bill could materialize.

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