After running into a wall off offers at $41.50 into the NYMEX open, the enduring Oil market rally appears to have run out of steam as profit-taking initially set ahead of some critical inventory data, which was likely exacerbated by technical factors as the pieces entered the upper border of the March price gap.

That chart zone is one of the essential levels of resistance within reach and a smidgen above the price where it is thought that US producers could be encouraged to ramp up production.

But profit-taking was likely further sustained from the real-life Covid-19 drama that is front in the centre and is virtually on everyone’s minds.

The US government’s top infectious disease expert sounded the alarm bell reminding the world the virus threat remains acute with California reporting its most significant daily jump.

While the speed and size of the fiscal response to the downturn have helped to cushion households through this downturn, but if the flu continues to spread, consumers will feel unsafe to leave their house as the self-imposed stay at home mandate continue to hamper the US economy recover.

And as far as the inventory data concern, the oil markets cannot seem to get it over the finish line as the API confounded traders with an alarming increase in crude oil inventories of 3.857 million barrels after analysts had predicted a smaller build.

Generally, the market would take these numbers in stride, but I suspect expectations were running high for even a draw given the storm Cristobal effect. Hence, there is a high level of disappointment leaking into the price action this morning.

All in all, this will be a good test for the markets bullish resolve as WTI price action shuffles towards the psychologically crucial WTI $ 40 per barrel.

There was also the introduction of new risk factors after oil futures plummeted when US trade adviser Peter Navarro said in a TV interview that the trade deal with China was “over.” While the comment was later walked back by President Trump, the short-lived hit to oil demonstrates how sensitive the price is too lousy news.

While prices were generally trading higher into the NYMEX or on reports of more progress within OPEC+ on enforcing compliance with the production cut agreement, the Covid-19 wall of worry was too big to climb as sentiment turned sours as a second wave of the coronavirus continues to grow, while the omnipresent risk a rebound in US onshore production lingers in line with higher prices.

But at the end of the day, the primary two conditions for WTI oil prices to make significant headway above $41 1) a draw on the weekly inventory report and 2) a fall in the daily case counts in at least 2 of the three most populous states were not met likely encouraging more tapering of long positions.

In a market that appeared to be on the verge of consolidation as per last week commitment of trader data report, that trend could be the first order of business for the remainder of the week.

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