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- Oil prices extended gains on Tuesday after Monday’s “presidential homecoming” triggered a big rally and lifted investor sentiment alongside worker strikes in Norway and a hurricane in the US.
- Brent crude leapt 6% to $41.5 a barrel and US benchmark West Texas Intermediate jumped 6.3% to $39.5 on Monday, recovering the lion’s share of the heavy losses late last week.
- A worker strike in Norway’s oil and gas industry and the start of evacuations in the Gulf of Mexico ahead of the expected Hurricane Delta helped lift prices on Tuesday.
- However, an OANDA analyst warned that betting on Brent’s rise to $44, or WTI near $42, would be a “painful trade.”
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Oil prices extended gains on Tuesday, following Monday’s explosive rally that followed President Donald Trump leaving the Walter Reed National Military Centre to return to the White House after receiving three days of COVID-19 treatment.
Recouping heavy losses from the end of last week, Brent crude futures leapt 6% to $41.5 a barrel and US benchmark West Texas Intermediate rose 6.3% to $39.5 on Monday, in their biggest one-day rally in five months.
Aside from a general rally in assets coinciding with Trump’s return home to continue treatment at the White House medical unit, a combination of factors pushed oil higher.
A widening strike by oil workers over wage disputes in Norway and the start of evacuations from oil rigs in the Gulf of Mexico ahead of Hurricane Delta helped lift prices.
Both events are supportive of price jumps as they threaten to obstruct oil production, causing an overall drop in supply. The production outage equates to 330,000 barrels per day, or 8% of Norway’s oil and gas production, according to Commerzbank.
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As Hurricane Delta is on track to hit the Gulf coast later this week, its evolution will dictate whether WTI crude has the most upside potential and can test longer-term resistance around $42, said Jeffrey Halley, a senior market analyst at OANDA.
“Even if oil prices do continue to rally this week, I would caution about getting sucked into a false dawn,” he said. “Extraneous factors are lifting oil prices, with nothing structurally changed on the supply-demand equation for global markets.”
Halley warned that risks have increased as European governments and the UK have reimposed COVID-19 restrictions that are set to last indefinitely. There are a number of factors, including rising supply, that will pose strong headwinds to the oil price in the coming weeks.
“If Hurricane Delta peters out, the Norwegians go back to work, or the US President takes a turn for the worse, all the reasons for oil’s rally could disappear as fast as they began,” he said.
Halley said betting on Brent’s rise to $44, or WTI near $42, would be a “painful trade.”
“That said, for nimble traders, they are possible; just don’t fall in love with your position there,” he said.
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