Any sign of improvement in the situation with COVID-19 cases would be strongly positive for the oil market
Oil prices extended gains above the $70 barrier on Tuesday for the first time since March, buoyed by investor optimism over the outlook for the economic recovery as the world is getting out of the pandemic crisis. The UK economy reopened on Monday, while new cases in the United States continued to fall. As such, the futures rose despite a round of weaker-than-expected economic data from China and the fact that India has seen a plunge in fuel demand following restrictions to curb infections.
Also on the positive side, risk sentiment has improved substantially on Tuesday, putting the safe-haven dollar under pressure across the board. The USD index dipped to fresh multi-week lows in recent trading, staying on the defensive during the European hours. It looks like the greenback could remain under pressure in the short term as traders could keep a cautious tone ahead of the FOMC meeting minutes due on Wednesday. In this scenario, Brent crude could receive another boost and climb to fresh highs in the coming days.
Also, traders will focus on the upcoming industry data from the API and the EIA due later today and on Wednesday, respectively. If the reports point to a contraction in US crude oil inventories, the futures would add to gains and could even challenge the $71 handle last seen in early-March.
In a wider picture, however, further gains could be limited as the outlook for energy demand recovery remains uncertain due to the ongoing coronavirus pandemic in some Asian countries. In this context, any signs of improvement in the situation with COVID-19 cases would be strongly positive for the oil market.
In recent trading, Brent crude has retreated below the $70 figure, being rejected from the $70.20 area seen earlier in the day. If the local correction continues in the short term, the prices could get back below the $69.50 region amid profit-taking.