Oil outlook is gloomy as demand weakens, PMI data in focus

Despite Monday's rise, oil prices remain under pressure from mounting COVID-19 cases in Europe and a potential release of oil reserves, pointing to weak demand amid potential oversupply.

A weak European economy also dampened crude oil prices, creating expectations that mobility would be curtailed over the next couple of months. These developments have already led the IEA and OPEC to warn that the market could turn from shortage to surplus.

The strengthening US dollar also pushes further pressure on oil prices as Dollar-priced crude oil becomes more expensive for buyers with other currencies.

Meanwhile, Brent oil remained under the psychologically important $80 mark, and WTI crude struggled $75 firm support due to the prospect of releasing strategic petroleum reserves (SPR).

CFTC data showed on Friday that speculative long positions had fallen again during the week through Tuesday, suggesting that traders have lost faith in crude's momentum amid rising bets on the release of strategic reserves.

Fumio Kishida, the Japanese prime minister, announced that he was willing to lend a hand to combat soaring oil prices after the United States asked for oil from its emergency stockpile to be released.

In the event that the US takes action and "unleashes" some of its reserves, oil prices could drop even further.

In that case, even if OPEC+ leaves the supply cut plan unchanged during its December meeting, the global oil market may experience a supply surplus by the end of the year.

The downward movement would likely intensify after crossing below the 50-day moving average, heading toward a lower support level at $ 73.88. If the bears push the price beneath this level, the next hurdle would probably be met at 71.50.

Eventually, the 200-day EMA is expected to serve as a strong support level.

On the flip side, if buyers manage to retake control and push the prices higher, the first challenge would be found at the 77.56 mark as the previous down-leg swing.

Events of the day

Traders will closely follow the economic data this week for reliable clues regarding the outlook for energy demand. Tomorrow will see the release of Germany's third-quarter economic growth figures, as well as the purchasing managers' indexes for Britain and the United States.

Meanwhile, the API weekly report, due out tomorrow night, will provide valuable information regarding changes in demand for oil.