US crude oil prices have surged since the collapse of last April. The commodity posted a profit of 300% from the lowest points reached on April 20. The rise in oil prices came with the support of several factors, including: the demand to buy the commodity at a low price, the strong Chinese hunger to buy oil, the hopes of a strong economic recovery, and an increase in the pending demand on the hopes of the economy returning to work. More importantly, this is the decision of OPEC + and the United States to reduce oil production They have unprecedented discount levels.
But as soon as oil reached levels of $ 40 and the like, the momentum began to wane, and this level represents a pivotal level for the commodity, and discussions are now increasing in the market about the return of US production to work. And players in the market close their positions without making a long-term decision from OPEC, so OPEC decides production levels per month, and this is what confuses the market.
At a meeting of the organization this month, members and allies decided to cut oil production during July by 9.7 million barrels per day. OPEC decided to refer to members who violate their production quota, and asked them to submit a detailed plan on how they will fulfill their obligations this time..
Is the risk in the oil market still?
There are still some points that broadcast danger signs in the oil market. The rally came on the back of slowing production, but future economic visions continue to be weak, which would topple prices to correct. The Organization for Economic Co-operation and Development, and the World Bank, say the recession will be severe in the global economy in 2020. The US Fed expects a 6.5% decline in GDP this year. The Fed’s vision is pessimistic, and this has been confirmed time and again by the Bank’s President, and has kept interest rates near zero until the end of 2020..
The question here is whether or not oil is?
Oil rose strongly against expectations of a rapid recovery, so strong slowdown fears may make the commodity vulnerable to correction. But the depth of the correction depends on the global virus setting.
Corona virus cases continue to rise. The World Health Organization said today that the cases recorded the highest daily increase ever. Global infections exceeded 8 million. Market fears are especially high about the increase in the US and China.
The debate is raging for the time being to increase infection rates to a degree that calls for the occurrence of a second wave of corona virus. Market fears heighten governments’ application of closing restrictions again to stem the rapid spread.
The economy has not recovered yet, and any closure at the present time will lead to the loss of the economy. We see that governments are trying to avoid the closure because of its devastating economic effects. But here is the significance, that is, a strong and deep liquidation in the oil market that will only be achieved by a global closure of the economy that will push the demand for collapse.