With one more week of US driving season left, oil prices received a much needed helping hand from a bullish to consensus oil inventory draw.

The American Petroleum Institute (API) reported on Tuesday crude oil inventories declined 6.360 million barrels for the week ending August 28 against a 1.8 million consensus.

And while the US dollar index is trading a bit stronger this morning, the precipitous 5% +decline in the greenback since July and the current US Fed’s lower for longer interest rates policy is offering a modicum of support.

Oil prices continue to melt up amid signs of gradual demand improvement, albeit in shallow volatility conditions.

Encouraging economic data from China

In early Asia, WTI is trading off Monday’s highs but is still hugging $43 per barrel, finding support from decade high PMI prints in China.

However, near-term headwinds from the uncertain macro environment with Fed Governor Brainard striking a pessimistic tone on the economy overnight, and rising production are likely to limit the upside.

And these issues could lead to a correction lower in the coming weeks, even more so if the mega commodity reflation trade runs out of steam as the old dog – the US dollar doesn’t look like it is going to roll over just yet.

Still, positive medium and longer-term supply-and-demand trends are supported further along the curve suggest WTI should remain comfortably above the $40-41 level.

Given what is known on the vaccine front, there does not appear to be any threat of Covid-19 driven imminent sell-off.

Coronavirus vaccine prospects

But with the vaccine at least 6 months away coupled with the fact prompt oil trades in the “here and now,” there is not enough inspiration for traders to carve out a new higher range around WTI $45 per barrel.

In this current environment, with coronavirus hotspots dotting the global landscape, bulls are being unusually timid on the reflation front.

This might suggest there are concerns as the northern hemisphere heads for colder autumn months, forcing social activity indoors where the risk of catching the virus rises.

Oil markets analysis and insights from Stephen Innes, Chief Global Market Strategist at AxiCorp