10.11.202011:36 Forex Analysis & Reviews: Oil's downward correction starts again

The price of crude oil dropped slightly this morning. A fall in oil prices was possibly driven by a correction which was needed after the rapid growth the day before. As a result, market participants rushed to take profits they managed to generate yesterday.

Today, Brent futures contracts for January delivery fell by 0.87%, or $0.37, to $42.03 per barrel in London trading. Yesterday was a very successful day for Brent blend as it immediately advanced by 7.5% or $2.59. Yesterday's surge in the price of Brent oil can be considered one of the strongest daily rises since early summer. Brent managed to recoup most of the losses it incurred last month. Today, however, the situation in the market has been extremely volatile.

Meanwhile, this morning, West Texas Intermediate (WTI) futures contracts for December delivery plunged by 1.17%, or $0.47, to $39.82 per barrel on the New York Stock Exchange trading floor. At the end of the trading session on Monday, contracts soared immediately by 8.5%, or $3.15. Such a significant increase has not been recorded since May this year.

Consequently, on Monday, both oil contracts were able to rise to their highest levels recorded at the end of October.

Yesterday, investors' optimism improved amid the news about positive coronavirus vaccine trial results. To recap, Pfizer and BioNTech are conducting clinical trials to develop a potential COVID-19 vaccine. If this vaccine gets federal approval, the companies will be able to start its widespread distribution. Any positive changes in this field are immediately reflected in the markets, especially the commodity one, since they contribute to a significant increase in demand for risky assets.

If the companies keep their promise to release the vaccine in the near future, the oil market will be able to breathe a sigh of relief. This is due to the fact that the main pressure on demand comes from the implementation of quarantine restrictions. During the pandemic, people's demand for hydrocarbons is on the low level. Meanwhile, it is of great importance to the oil market. Nevertheless, it is too early to talk about a steady growth in demand for raw materials. Nowadays as well as in the near future, it will be impossible to achieve a balance between supply and demand. The current gap is too big to narrow it quickly and smoothly.

In this regard, uncertain demand prospects remain the main problem in the oil market, especially amid the growthing number of global coronavirus cases. Regions most affected by the pandemic are Europe and the United States. Several European countries have already introduced national lockdowns which is unlikely to be beneficial for them. Quarantine restrictions can seriously limit and restrain the economic growth of such countries, triggering an economic crisis. An alarming epidemiological situation in the United States is also a cause for concern. It makes market participants believe that the government may also resort to extreme measures such as a lockdown. The United States is the largest consumer of crude oil and petroleum products in the world. Therefore, the consequences of a lockdown for the hydrocarbon market can be damaging.