of clients are net short.
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Though crude oil production in Libya could undermine OPEC+ efforts to keep a lid on supply. Libya oil production has surged over recent weeks to 1.2-million barrels per day. Likewise, detailed on the DailyFX Economic Calendar , US oil rig count continues to climb and inventory data from the Department of Energy showed an increase of 4.3-million barrels.
These headwinds present downside risks to crude oil price action in addition to the dominant threat of resurfacing coronavirus concerns as new cases spike and lockdown measures are reintroduced. Top central bank officials, such as Federal Reserve Chair Jerome Powell, have voiced adamantly how the economic recovery hinges largely on the course of the virus.
CRUDE OIL PRICE CHART WITH VIX INDEX OVERLAID: DAILY TIME FRAME (24 JUN TO 13 NOV 2020)
Chart by @RichDvorakFX created using TradingView
To that end, as some of the world’s largest economies grapple with another staggering wave of COVID-19, it comes as little surprise that OPEC just slashed its crude oil demand forecast for next year and the rest of 2020 by 300K barrels per day. The IEA similarly downgraded its outlook for crude oil demand last week. Nevertheless, positive coronavirus vaccine news, like Pfizer reporting a 90% effectiveness in preventing COVID-19 , stands to keep markets optimistic and forward looking.
This development, and not to mention the strong chance that OPEC+ delays its planned supply increase, show potential of bolstering crude oil prices more broadly. If the JMMC meeting next week reveals little appetite for OPEC postponing its production increase, however, commodity traders might steer crude oil price action sharply lower.
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The direction of the S & P 500-derived VIX Index , or fear-gauge, stands out as another possible bellwether to where crude oil heads next. Crude oil prices and the VIX Index tend to mirror one another as highlighted by their generally negative correlation. An abrupt jump in the VIX could indicate risk appetite is souring, which would likely correspond with crude oil selling pressure. Conversely, if expected stock market volatility continues to bleed lower, crude oil prices might edge back higher seeing that a lower VIX typically indicates improving trader sentiment.
Keep Reading – How to Trade Crude Oil: Top Oil Trading Strategies & Tips
— Written by Rich Dvorak , Analyst for DailyFX.com
Connect with @RichDvorakFX on Twitter for real-time market insight