Oil Price Analysis – Headwinds and Tailwinds

oil price analysis
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As economies around the world had reopened and oil demand gradually recovered, the price had been moving higher, but during the month of August, it looks like the momentum had stalled and the market is waiting for more good news before continuing higher. Last week we’ve provided an update on gold and today we want to talk about oil because it is still one of the most popular commodities among CFD traders.

Continued recovery with no risk resurgence?

Considering that financial markets, including commodities, will continue relentlessly higher without any sign of dipping would be exaggerated. Markets have their rhythm and at some point in time, before the end of the year, CFD traders should expect to see a market correction. If risks will rise again and will influence market participants’ behavior, then oil could be vulnerable faced with weaker demand prospects.

Trading commodities in 2020 comes with several unique challenges due to the COVID-19 pandemic, but the good news is that we’ll continue to see volatility and that could generate plenty of trading opportunities.

Oil to fall with stocks

In recent months, stock markets had resumed selling each time negative headlines related to the pandemic had shown up. If risk reappears, then we would very likely see the US dollar rise again and that would be a major headwind for the oil price. Social distancing measures will be strongly reinforced and restrictions of businesses will keep economic activity subdued for a longer period, generating a self-reinforcing chain of events that won’t spear the oil price.

Demand and supply cuts – key factors to look at

The last important thing to look at has to do with the next several OPEC meetings and how other big oil exporters like the USA will adjust their oil supplies. Oil CFD traders need to keep in mind that by reducing output several months ago to balance the market, oil producers had put market share at risk and their main goal would be to get things back to normal once the pandemic will be under control.

It would be difficult to time it correctly because some economic damage would be permanent and it could take up to a few years before the world gets back to pre-COVID levels. In case oil starts to weaken below the $40 (crude oil), then we should expect to see a corrective formation unfolding. What do you think about the oil price both in the short and long term? Can it keep the same strong momentum without major setbacks?

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