Crude Oil Fails to Gain Positive Traction Despite EIA Update – A Quick Update!
Arslan Butt • 3 min read
During Thursday’s early Asian trading session, the WTI Crude Oil prices failed to stop their overnight declining streak. They remained depressed around the $42.00 level, mainly due to the renewed worries over the global economic recovery, as the number of COVID-19 cases is steadily worsening across the US and Europe, which tends to reduce investor appetite for oil. Let me remind you that the spread of COVID-19 and new restrictions in the US and other parts of the world has kept the market trading sentiment under pressure. As a result, the broad-based US dollar took fresh bids in the wake of its safe-haven status, which also played a key role in weakening the crude oil prices, as the price of oil is inversely related to the price of the US dollar.
The delay in the US COVID-19 aid package is also exerting downside pressure on the crude oil prices. Meanwhile, the geopolitical tensions between China and some notable countries like the US, added a burden to the crude oil prices. On the bullish side, the renewed optimism between the UK and the EU over Brexit and positive news about vaccine progress have become key factors that are helping to limit more profound losses in crude. In the meantime, the drop in the oil prices was also capped by the upbeat crude oil supply data from the US Energy Information Administration, which was released recently. This was a key factor that kept a lid on any additional losses in the crude oil prices. At the moment, crude oil is trading at $ 41.70, and consolidating in the range between 41.50 and 41.91.
On the bearish side, the increasing numbers of COVID-19 infections and fresh restrictions in the US, Europe and some of the notable Asian nations, are continually fueling worries over the economic recovery, which, in turn, is hampering the fuel demand. As per the latest Johns Hopkins University report, the number of cases globally has crossed 56 million, of which 11.5 million are in the US, with nearly 250,000 deaths in the US alone, which amounts to nearly one-fifth of the total global deaths. Not only the situation in the US has alarmed investors, but also the latest developments in Tokyo. New York is now restricting personal presence at schools while Japan has implemented alerts in the capital after the daily count crossed 50 on November 16. It is worth mentioning that the number of COVID-19 cases in Japan has exceeded 2,000 for the first time since the virus outbreak began. This, in turn, exerted downside pressure on the market risk tone and contributed to losses in oil.
Across the ocean, the long-lasting failure of the US Congress to give any major clues over the next stimulus package is also playing a major role in undermining the crude oil prices. In the meantime, the rising tensions between the United States and China continued to pick up pace, which eventually exerted additional pressure on the market sentiment and contributed to the losses in crude. As per the latest report, the policymakers from major countries like the US, Australia and the UK recently released a statement. They urged China to stop threatening the rights of the people of Hong Kong by respecting international commitments.
On the USD front, the broad-based US dollar managed to extend its bullish bias of the previous day, taking further bids on the day, amid the risk-off market sentiment, which tends to underpin the US dollar. However, the gains for the greenback could be short-lived or temporary, amid a worsening coronavirus (COVID-19) situation in the US and the delay in the US COVID-19 aid package, both of which are propelling fears of an economic slowdown in the United States. Thus, the gains in the US dollar could also be a key factor that has kept the crude oil prices down, as the price of oil is inversely related to the price of the US dollar. At the same time, the US Dollar Index, which tracks the greenback against a bucket of other currencies, has risen to 92.448.
On the contrary, the renewed optimism between the UK and the EU over Brexit, and positive news about vaccine progress, have become key factors that are helping to limit further losses in the crude oil prices. As per the latest report, Pfizer has released the final results of their vaccine trials, suggesting a 95% effectivity rate, while the Oxford-AstraZeneca vaccine is also showing progress.
But, as we have already said, the losses in the crude oil prices were also capped by the upbeat crude oil supply data that was recently released by the US Energy Information Administration, which became a key factor that kept a lid on any additional losses in the crude oil prices. On the data front, the EIA report showed that US crude stockpiles rose by 769,000 barrels last week, which was less than the 4.17 million barrels estimated by the American Petroleum Institute.
Looking forward, traders will keep their eyes on US Unemployment Claims and the Philly Fed Manufacturing Index. Apart from this, the continuous drama surrounding the US-China relations and updates about the US stimulus package will not lose significance. Good luck!
About the author
Arslan Butt is our Lead Commodities and Indices Analyst. Arslan is a professional market analyst and day trader. He holds an MBA in Behavioral Finance and is working towards his Ph.D. Before joining FX Leaders Arslan served as a senior analyst in a major brokerage firm. Arslan is also an experienced instructor and public speaker.