Crude oil futures were lower during mid-morning trade in Asia Nov. 22 as a risk-off sentiment continued to drive a sell-off in oil markets with Europe battling its fourth wave of COVID-19 infections and the possibility of a release of state oil reserves still present, reports S&P Global.
Impact of COVID
“The headlines surrounding COVID-19 resurgences in Europe [is] likely to lead market sentiments into the new week,” said IG market strategist Yeap Jun Rong.
“While the longer-term trend is still leaning towards more economic reopening, fresh restrictions drive concerns of a delayed process and that more countries may potentially follow suit in rolling back reopening plans to curb virus spreads,” Yeap added.
Austria is set to go into full lockdown starting Nov. 22 as daily cases in the country crossed 15,000 last week, following the Netherlands which went into partial lockdown from Nov. 13.
Germany, Europe’s largest economy, has not ruled out following suit as the country’s recent caseload hit record highs.
The bearish headlines, coupled with reports of the US and other major oil consuming countries possibly tapping into their oil reserves, have worked against the narrative of a tightly-supplied market and the consequent bull run in oil prices.
Since hitting multi-year highs in late October, crude prices have struggled to break further ground. Surging energy costs have drawn the attention of governments worldwide as they grapple with the accompanying rise in inflation.
IG’s Yeap pointed to the possibility of further declines in oil prices, citing the $77.65/b mark for Brent, where the Fibonacci 38.2% retracement level lies, as potential support. “A temporary rebound off the current level may put the US$80.00 psychological level on watch as potential resistance,” he added.
“High-frequency data suggests the market remains tight. This may be driven by ongoing supply-side issues. OPEC has struggled to increase output at the agreed rate over the past two months, as producers such as Nigeria and Oman struggle with operational issues. US shale producers have also been reluctant to boost output despite high prices,” said ANZ’s Brian Martin & Daniel Hynes.
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Source: S&P Global