29.05.202016:47 Forex Analysis & Reviews: Oil finished rally

The cost of crude oil at the beginning of trading this week was under significant pressure from several factors at once. The growth of stocks in America, the slowly increasing demand (fuel included), as well as the escalation of the conflict between the United States and China are just a few visible reasons for the continuation of the downward trend in the oil market.

This morning, the price of futures for Brent crude oil for July delivery on a trading floor in London continued its fall yesterday, to which it added another -0.99%, or $ 0.33. Thus, the price dropped to the level of 34.94 dollars per barrel, which is lower than the closing on Thursday. Recall that the price of Brent at the end of the previous session gained 1.6%, or $ 0.5, which raised it to the mark of $ 35.29 per barrel. In addition, do not forget that contracts for delivery in July expire on Friday. Contracts for delivery in August are in great demand, but they fell in price by 0.8%, or 0.29 dollars, and began to cost 35.74 dollars per barrel.

The price of WTI light crude oil futures for July delivery on the New York Stock Exchange also underwent a downward adjustment this morning. It fell by 1.6%, which is equivalent to $ 0.54, and this dropped contracts to the mark of $ 33.17 per barrel. Recall that yesterday's session ended with the growth of this brand by 2.7%, or 0.9 dollars, and its level was 33.71 dollars per barrel.

Over the current month, oil has made it almost impossible but it somehow managed to grow significantly, which became a signal to exit the crisis stagnation. So, Brent increased in value by 39% in the total calculation, and WTI recorded a colossal price indicator of 76%. This is an excellent result, given the general geopolitical state and macroeconomic data.

For four consecutive weeks, crude oil did not part with a positive trend, but the moment of decline somehow had to come sometime. The black gold market is taking a breath for the next flight, waiting for the prices of refining and marketing of petroleum products to catch up with those for crude oil.

According to experts, in the long run, oil will have every chance to continue its rally, but in the near future, it is not worth betting on growth.

There are several important reasons for this. First, yesterday's report by the Energy Information Administration reflected an increase in crude oil and distillate reserves in the United States. Moreover, the growth turned out to be quite substantial and unexpected for experts who, before that, unanimously claimed that it was worth waiting for the reduction. Against this background, the demand for oil products also looks rather weak and unstable, which, of course, is very sad for the market. Also, the fact that demand has not responded to the opening of the borders of several more states after the lifting of quarantine measures related to the COVID-19 pandemic, added more worry in the situation. It turns out that, despite the holidays, the inhabitants of America chose to stay home and not go anywhere in their cars, although analysts expected a different situation.

Nevertheless, some positive is present here. On the territory of Cushing, which is a strategically important object not only for America, but also for traders, oil reserves have declined, and this is a good sign.

Secondly, another important factor of pressure is the ever-new turns of the conflict between Beijing and Washington. Rising tensions are holding investors back from risky moves. Market participants were seriously worried about the Chinese side's decision to pass a bill protecting Hong Kong's national security. The American authorities regarded this step as a political and economic demarche and promised to introduce a response, drawing Beijing's attention to the fact that it was making a big mistake that would greatly affect relations at different levels between countries.

As a response from the United States, the return of a portion of duties that had previously been canceled for goods from China could be made. In addition, Hong Kong risks losing its status as a global financial center, which does not suit the Chinese side at all.

The third determining factor in the movement of oil quotes is the agreement between OPEC member countries to reduce the extraction of raw materials to maintain demand for it. Very soon (June 10), the next OPEC summit will take place, at which the main place will be occupied by the issue of extending the agreements on reducing oil production, adopted in May and June. Saudi Arabia urges all countries to continue the established quotas until the end of this year, but not all states support this policy. So, Russia is already expressing an unspoken desire to withdraw from the treaty. And since she is the largest participant, without her coalition forces will be very limited. No official statements on this subject have been made, but traders have already felt the tension from the current situation.