Oil once again flirted with $40/bbl but lost steam soon after, reaffirming the strong resistance that the commodity has built around, in the last few months. Brent’s 100 and 200-day moving averages both hover around $40/bbl, and there appears little reason why it should change anytime soon, unless of course there is a fundamental change in the supply and demand dynamics.
Some are pinning hopes on the outcome of the US presidential election. The election remains too close to call yet, but a Joe Biden win still appears likely, albeit delayed, should the outcome hinge on the court orders. A Biden win is likely to add more to the threat of oversupply, as Iran may be brought back to the fold. Market watchers say the Biden win is by and large embedded in the bearish run that oil has had, but that may be far from reality, as kneejerk reactions are still a thing in the oil market, and don’t be surprised if oil tanks with Biden’s ascend to the White House.
On the flipside, Trump retaining the office could offer some hope, but not much. That is because the demand and supply fundamentals minus the US election dynamic remain as wobbly as they were a month, or two, or six ago. The pandemic has shown no signs of receding, and the USA has just reported its highly daily infections at 100,000. If anything, America under Joe Biden would likely be imposing more mobility restrictions than the Trump administration, and that could give oil a bigger demand shock than any of the European lockdowns have.
And then there is the fresh ongoing second wave of the virus, which has led to various versions of lockdown across Europe’s largest economies. This is why speculations are rife that the Opec Plus group may well be extending the reduction in production cuts beyond the earlier planned January 1, 2021 deadline.
Recall that Opec+, which also includes Russia have been on an 18month long spree of well-coordinated and high compliance production freeze. It was earlier agreed to gradually increase supply from 2021 onwards, in a bid to regain the lost market share to players outside the cartel. With Saudi Arabia still calling the shots, and the commitment it has shown to not let the prices fall solely because of oversupply, there is high likelihood of the planned increase in supply being postponed for at least another quarter. At best, this will lend stability to oil prices around the current prices, and not a reason for a bull rally.
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