Oil prices declined marginally on Tuesday but posted the best quarter in nearly thirty years as the futures switched into a recovery mode following a plunge along with global stocks in the first quarter. Brent crude resumes the ascent on Wednesday, having exceeded the $42 figure despite risk-on tone looks muted in the global financial markets.
Overnight, the API report showed that crude oil stockpiles contracted over 8 million barrels last week, with gasoline inventories being down 2.5 million barrels. Also on the positive side, stronger-than-expected manufacturing data out of China and Germany helped to somehow ease concerns over rising coronavirus cases in the United States.
On the other hand, the resurgence of oil production in the US and the potential recovery in Libyan oil output cap the upside potential in the market. Later today, the official report from the EIA may show further recovery in shale oil production. If so, the current bullish attempts will wane, and the futures could turn negative on the day amid further signs of rising supply.
From the technical point of view, Brent needs to confirm a recovery above $42 on a daily closing basis so that to extend the ascent in the days to come on the condition that positive risk sentiment will prevail in the financial markets. Otherwise, the $40 handle will come back into market focus. Meanwhile, the intermediate support arrives at $41.
In a wider picture, oil prices remain within a bullish trend since late-April, and it looks like the futures are ready to extend the recovery in the medium term, targeting the $54 figure. However, if the coronavirus-related developments continue to worsen, oil bulls will struggle along with global stock markets, as the outlook for the global economy and energy demand will deteriorate if the second wave of pandemic takes place.