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Despite Brent crude is mildly positive on the day on Monday, the oil market remains on the defensive in general as buyers are cautious amid the resurgent worries about a potential second wave of the coronavirus pandemic. Oil prices failed to resist a widespread risk aversion that sent global stocks lower at the start of the week. 

Traders express concerns over the outlook for energy demand recovery amid the ongoing pandemic combined with record crude oil stockpiles in the United States. Furthermore, Saudi Arabia and its Gulf allies decided not to extend their voluntary cuts into July, which is adding to the negative sentiment in the market. 

Against this backdrop, it looks like the selling pressure will persist, at least in the near term. If Brent fails to hold above the $37 level, a deeper retreat should be expected. Once below this support zone, the futures could extend the correction to the levels below $35. Of note, the daily RSI is pointing south in the neutral territory, suggesting further losses could be expected.

On the upside, Brent needs to challenge the 100-daily moving average around $38.70 and then to make a decisive break above the $40 figure in order to regain its bullish momentum. At this stage, downside risks prevail. If investor sentiment surrounding the coronavirus developments deteriorates again, the selling pressure could intensify. In this scenario, we will likely see a daily close below $38. 

In a wider picture, the futures remain relatively upbeat on the weekly timeframes despite last week’s losses. Any signs of receding concerns over the coronavirus pandemic could easily push the prices higher, as the market has been generally supported by the recent extension of the OPEC+ deal. 

Later this week, the weekly API and EIA data could affect market sentiment. Should the data point to further growth in crude oil inventories in the United States, this will add to the selling pressure surrounding oil prices. 

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