For better or for worse, oil markets continue to track broader markets, this time lower and as demand concerns have never really left the picture.

However, the API inventory report has temporarily halted the latest oil price slide. The across the board inventory declines reported by the API came at a timely juncture with risk sentiment reversing lower overnight.

But the medium-term demand picture remains clouded with uncertainty, even as the number of new coronavirus cases in the United States is now falling.

Positive risk sentiment is fundamentally crucial to the oil market these days. With US stock markets tumbling into the red in the last hour of trading overnight, oil prices rode the waning sentiment coat tails lower after the Republican Senate leader, Mitch McConnell, threw cold water on hopes 5th US stimulus package will be announced shortly. He told reporters there have been no talks on a new economic stimulus package since Friday, denting expectations for an imminent deal.

After all, when you strip all the “risk-on” caveats back, the only relevant information that might augment investors’ comprehension of the path of the real economy has come in the form of fiscal stimulus chatter. And even on that front, while, the handout is a direct help to millions of US citizens.

However, the more significant economic impact is around fear of prolonged unemployment and its consequences, which might continue to hold oil prices back over the medium term.

After all, in what is expected to be a consumer-driven rally, oil prices will have trouble moving higher if the US and global employment trends do not return closer to pre-COVID-19 levels.

But trading “risk-on” with caveats can always be a dangerous chore, especially in oil markets that are super sensitive to broader market sentiment shifts. For example:

• Russia’s encouraging announcement that it has registered a Covid-19 vaccine had the warning that it remains conditional as trials are ongoing. Some of the other current vaccine trials are reportedly further ahead of the symbolically named “Sputnik V.” vaccine.

• Although the US administration is open to restarting the virus relief talks even putting more money on the table, so far, Democrats have baulked.

• Covid-19 is never far from the conversation. Sure, there was better news on US COVID-19 data with falling hospitalisation rates in California, Texas, and New York but more significant increases in German case counts and reintroduced some containment measures in New Zealand. Indeed, this certainly does not help with the positive Covid-19 health care view as the weather in the northern hemisphere shifts the dial to frigid in winter months. Medical authorities have warned of the potential for new virus outbreaks, which could be the foreshadowing of the winter of discontent.

On the brighter side of the oil complex ledgers, traders are expecting US stimulus in some form or another, as well as a small recovery in global demand as US Sun Belt States, begin to reopen gradually. Flight tracking data report showed that the number of commercial flights around the world rose almost 6% in the seven days to Sunday, giving hope to a recovery in jet fuel.

But ultimately, oil prices will be planked due to OPEC + production cut deal and unwavering compliance around the principle of compensation along with the dour production outlook in the US shale complex.

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