Crude oil prices dropped on Tuesday morning at London’s trading session. The price drop is due to concerns from oil traders that energy demand is plunging as a fresh wave of COVID-19 caseloads around the world ignite another wave of lockdowns. Moreover, OPEC+ has begun to relax its crude oil production cuts.
West Texas Intermediate dropped 0.73% to $40.71 a barrel as of 05.23 GMT, while Brent crude futures lost 0.77% to grade at $43.81 a barrel.
The fall in these international crude oil benchmarks is happening despite better-than-expected data on manufacturing activity in Asia, Europe, and the United States. Reports yesterday indicated that industries are emerging from the worst of the early COVID-19 pandemic impact.
Insight: In his usual notes to Nairametrics, Stephen Innes, the Chief Global Market Strategist at AxiCorp, explained why crude oil prices are expected to trend downward despite positive economic macros recorded recently from emerged markets. He said:
“The improving macro data likely pared a few weaker shorts overnight. I think it is fair to say that most oil market participants expected more downward pressure on oil to start the week with Covid-19 ravaging the landscape and OPEC + adding more barrels into play.
“The theme remains the same, however, with prices hovering around the $44/barrel level this morning as demand recovers from 2Q lows but stammers from fully recovering because of the continued impact of Covid-19 on oil demand.”
Outlook for Brent Crude: While it remains unclear where crude oil prices might be heading to in the short term, the worst-case scenarios similar to the lows recorded in April 2020 have been ruled out. However, the skies are not blue yet for crude oil traders. Brent crude is expected to stay below the $45 resistance levels in the coming days.