28.07.202012:02 Forex Analysis & Reviews: Oil market swing continues: prices increased yesterday, but are declining again today

The price of crude oil has undergone a slight negative correction this morning, although this will not most likely become a trend, but just a temporary trend. Yesterday's trading day began in the same way: there was some decline at first, but the quotes won back the losses and even increased slightly by the end of the day.

So far, the main pressure on oil is the escalation of the conflict between the United States of America and China. Market participants believe that this conflict could seriously harm the global economy, which is already quite weak after the crisis associated with the coronavirus pandemic. Although there are some positive aspects in the fall in oil prices. In particular, the low prices provide some support for the very volatile and weak US dollar, which is currently going through hard times.

Today, the focus of investors is directed towards the meeting of the US Federal Reserve System, which should last for two days, and its results are expected to support the stock market. Thus, traders hope that the main regulator will keep the base interest rates at the current extremely low level around zero for quite some time.

On the other hand, the Central Bank must understand that low rates have a negative effect on the national currency, which is weakening more and more. It can be recalled that the dollar index against a basket of six major world currencies broke a negative record yesterday: it was able to reach the lowest for the last two years and more, but this state of affairs is only at hand for the oil market.

Bad feelings in the market are also coming from the second stage of the contract with OPEC to cut oil production. Since August, the level of extracted raw materials has increased slightly for countries that have fully met their previous commitments under the deal. Investors do not yet fully understand how this will affect world oil prices, which causes a nervous wave. However, analysts assure that the current supply deficit of raw materials will "eat up" those surpluses that will inevitably begin to appear on the market in the last month of summer.

However, there is one more point of particular concern for market participants. A repeated and rather rapid increase in COVID-19 infections has begun in a number of countries. So, new outbreaks began to appear on the territory of China, Spain, Germany. This suggests the idea of a still not excluded option with a repetition of the events of the spring, from which the oil market declined very much.

The oversaturation of the market with raw materials is also indicated by the fact that the total volume of black gold in floating storage facilities is 244% higher than the level recorded for the same period last year.

The oil market may also get big problems after the Fed's statements about keeping the base interest rate at a minimum level. This traditionally pushes investors to work more actively in the sector of risky assets, including raw materials. Oil prices, of course, will increase, however, it will not be possible to ensure this growth in the future by the strong position of raw materials, since there are practically no visible factors for the rise. Ultimately, this could lead to an even more epic collapse of the oil market. In other words, the bubble will have to burst some time.

This morning, the price of futures contracts for Brent crude oil for September delivery on the trading floor in London declined 0.09%, or $ 0.04, less. Its current level is still at $ 43.37 per barrel, while it was at $ 43.41 per barrel yesterday, as Brent was able to increase 0.2%, or $0.07 by the end of the trading day.

The price of WTI light crude oil futures contracts for September delivery on the electronic trading floor in New York also corrected down by 0.34%, or $ 0.14 today. Thus, its level amounted to $ 41.46 per barrel. By the close of yesterday's trading day, it was able to slightly increase its value (by 0.8%, or $ 0.31), which sent it to the level of $ 41.6 per barrel.

It should be noted that yesterday's final rise in oil markets was provided solely by the decline in the value of the US currency, while on the contrary, other fundamental factors testified to the beginning of a reduction. Thus, just a hint of a negative correction of the dollar index is enough for the commodity market to feel good.