In line with the broader market and a slightly weaker US dollar, oil markets nudged higher overnight on some glimmer of optimism that the hugely underpriced stimulus deal could arrive on the oil market doorstep as early as October.
Simultaneously, earnings in China’s colossal production and operations engines provided further evidence of a robust economic comeback in the mega economic power. The data augers well for the China growth story and the outlook for commodity prices.
The big oil trading houses and a slew of bank economists are painting the most unflattering impression for Q4 prices with consumer demand in the northern hemisphere expected to cool with the temperature, leaving refiners with a possible glut of gasoline.
If it happens, the US stimulus checks will go a long way to shoring up the US oil demand at a most critical juncture and could move oil prices back into a pre-September frame of mind.
Meanwhile, clashes between Armenia and Azerbaijan have been renewed, raising concern about stability in the South Caucasus, a corridor for pipelines carrying oil and gas to world markets.
Mind you, these pipelines are buried deep underground, and it would need to be almost a terrorist like an attempt to fracture the mains and trigger a callous environment catastrophe.
And while the clash has provided a small bounce to oil prices, the decades-old conflict has not spooked the oil market just yet as energy traders do not seem particularly worried by any potential disruption to Azeri exports crude.
For oil prices to resume their uptrend, investors likely need to turn more optimistic about global growth prospects, which seem most likely to hinge on Covid-19 control in various countries and the outlook for vaccine approval and distribution.
Given current testing hit rates, it may be a few more weeks before Covid-19 case growth starts to ease, so it is most likely oil bulls will remain penned up for weeks or longer.
As global economies attempt to restart, news flow indicates the number of Covid-19 cases is rising, and this stop-start effect is playing out through the oil price as we suspected it might pass through to 2H20 even with a stimulus bounce.
Oil markets analysis and insights from Stephen Innes, Chief Global Market Strategist at AxiCorp