Oil prices are edging lower today to $40.58/barrel as bearish sentiment is continuing to mount over concerns of a possible resurgence of COVID-19 cases over the holiday weekend and paring the pause in the incredible rally in equities.
Just like the United States saw a surge in COVID-19 cases following the Memorial Day holiday weekend in May, concerns over a possible resurgence of the virus next week after the Labor Day weekend has tempered oil prices off its recent highs. Millions of people are expected to travel this weekend for the weekend to see family and friends, likely amassing in larger groups than normal which could spread COVID-19. A spike in cases could result in rollbacks of in-person classes at schools and colleges and subsequently cause a snowball effect that would diminish demand for gasoline and diesel. We will most likely know how this plays out in the next one to two weeks.
Another component of the bearish sentiment is a pause in the equity rally over the past two days with the red hot NASDAQ index 6.5% of its high from just Wednesday. The pause is attributed to a healthy pullback, but has some skeptics concerned that with the ongoing gridlock in Washington over the details of the next rescue package and election less than 60 days away that the selloff may need to be extended. This would be bearish for oil prices as commodities and equities typically follow each other in large moves.
Oil prices have pulled back in recent days as we failed to break above the $44/barrel level. Traders will look to see if we can break below the $40/barrel psychological level and hold there for a few days to determine the next pricing direction.
Have a great and SAFE Labor Day weekend!