Oil prices remain in a familiar trading range, struggling to stage a decisive move in either direction. Brent crude is making fresh bullish attempts around the $44 handle, a break above which is necessary for a more directional impetus in the short term.
Bullish potential in the market is capped by lingering concerns over the outlook for energy demand recovery amid the ongoing pandemic and weaker-than-expected economic data. Also, traders express concerns over the resurgent crude oil production in the United States. Later today, the EIA reveals its weekly report that may point to a further rise in output. If so, the release will bring the prices lower, as the market remains vulnerable.
Today, a mild bullish bias is due to the API report that showed overnight that crude oil inventories dropped by 6.8 million barrels last week to 531 million barrels. It was enough to compensate for worries about fuel demand and rising coronavirus cases. Still, the release failed to trigger a more decisive ascent ahead of the official data.
In a wider picture, a decisive recovery in oil prices could take place in the medium term if the relations between the US and China start to improve, and the pandemic stops. So far, both factors are negative for the market and could take the futures lower if the situation continues to deteriorate, especially on the back of a recovery in drilling and production activity in the United States.
From the technical point of view, the fact that Brent crude holds above the $40 handle for over a month already confirms traders’ unwillingness to push the barrel back to long-term lows registered in April. On the other hand, the longer the prices stay below the $45 handle, the lower are the chances for a decisive breakout. It looks like the market will remain in a consolidative mode for some time before the futures decide on further direction.