01.07.2020: Oil about to enter bear market (Brent, USD/RUB)
The American Petroleum Institute encouraged investors with a decrease in US oil inventories. So, oil bulls are pushing oil quotes upward. Investors hope for similar upbeat data in the official report from the Energy Information Administration. At the same time, too much optimism creates conditions for the bearish momentum. Indeed, there are lots of headwinds in the oil market. The American Petroleum Institute reported a decline of 8.16 million barrels in US crude stocks. If the government data which is due today confirms this figure, it would be the steepest weekly fall in US inventories this year. Such expectations propel the rally of oil prices. September Brent futures easily tested resistance at near 42 dollars a barrel. In midday, Brent crude gained over 3% trading firmly above the level of 42 dollars. Likewise, WTI is also trading higher. August WTI futures climbed above the psychological level of 40 dollars a barrel. Meanwhile, the energy market could come under pressure from the OPEC+ deal on oil production cuts. The cartel has not discussed yet the deal extension for August. Some experts are speculating about waning power of the valid pact for July due to growth of oil prices. If it is true, the oil market could go through a selling wave soon. Remarkably, oil prices skyrocketed 92% in the second quarter. The latest three months have been the best for the energy market since the Persian Gulf War in 1990. The catalyst for the rapid rally is compliance with the oil production pact. At the same time, prospects for growing global demand look uncertain amid the pandemic. Some countries around the world are re-imposing lockdown measures that dents demand for energy. Today the ruble is trading sideways at about 71.17 versus the US dollar. On late Tuesday, the dollar/ruble pair surpassed 71 as expected. Most traders preferred to close ruble-related deals ahead of the day-off in Russia on July 1. To sum up, the ruble closed the quarter in the red despite some success at the beginning. Since Monday, geopolitical risks overshadow the Russian currency. Pro-American mass media is spreading information that Russia offered reward to Taliban militants for successful attacks on the US troops in Afghanistan last year. The ruble is weighed down due to the seasonal factor. Traditionally, July and August are unfavorable months for the Russian currency. Technical analysis also suggests that the ruble could weaken to 71.70 against the US dollar in the short term.