Oil prices are on track for the second weekly fall, dragged lower by drop in stocks and gloomy outlook for global demand recovery

Oil prices edged lower on Friday and are on track to end the second consecutive week in red – their worst performance since mid-April.

Last week’s tumble in the US stock markets – driven by heavy sales in the tech sector – has been a key factor, while a rise in crude inventories has also pressured prices. Two weekly reports that track US crude stocks have shown a significant rise in inventories against expectations, with refineries in the Gulf of Mexico slowly returning to operations following storms in the region.

However, the most significant negative impact on oil prices comes from mounting fears that the recovery of global demand will be slow. This attitude, driven by recently released economic indicators, is at odds with the initial optimism and expectation that surrounded the oil markets, where sentiment was initially leaning towards a swift post-COVID-19 recovery.

To illustrate this, US crude oil and Brent oil are on track for a drop of over 13% in two weeks, a shift that points to a deeper correction of the April – August recovery leg (which stalled after multiple failures to clear important Fibonacci barriers on the daily chart).

Meanwhile, technical studies on the daily and weekly charts are negative and support this scenario, as the pause above strong daily technical supports is unlikely to last for an extended period. Indeed, unless the fundamentals change significantly, the current consolidation seen on the daily chart is only expected to precede a fresh push lower.