Crude Oil Extend Its Long Bullish Streak – Risk-On Sentiment In-Play

Posted Thursday, November 26, 2020 by
Arslan Butt • 3 min read

During Thursday’s Asian trading hours, the WTI Crude Oil prices were on a winning streak for the fifth consecutive day, remaining well bid, close to the highest level in several months, just above the $ 46.00 level, mainly due to a surprise fall in US crude inventories, which tends to reduce fears of an oversupply and revive the demand for fuels. Apart from this, the optimism over the recovery in fuel demand was further improved by the hopes of a potential vaccine for the dangerous coronavirus.

Across the ocean, the reason for the gains in crude oil could also be attributed to the weakness of the US dollar, mainly due to downbeat figures at home. This favored the crude oil prices, as the price of oil is inversely related to the price of the US dollar. Besides this, the sentiment surrounding crude oil was further improved by continued expectations that the Organization of the Petroleum Exporting Countries (OPEC) and its partners will uphold their current production restrictions, which tends to ease oversupply fears and helps the crude oil prices to remain within a bidding range. On the contrary, the bullish rally in the crude oil prices was capped by concerns about the escalation of the COVID-19 pandemic, which fueled renewed lockdowns in different countries. Meanwhile, the downbeat market mood is also playing a significant role in limiting the higher-yielding crude oil gains. WTI Crude Oil is currently trading at 45.95, and consolidating in a range between 45.69 and 46.09.

As we have already mentioned, the crude oil prices have pulled back from the highest levels since early March, which were briefly seen on the previous day, as the US rig count numbers came in as negative. Meanwhile, the surprise draw in the official inventory data pleased the crude oil buyers, with the highest price in approximately 9 months, before dropping down from $ 46.30. On the data front, US Energy Information Administration data registered a draw of 754,000 barrels for the week ending Nov. 20. At the same time, gasoline stocks increased by 2.2 million barrels in the week, to 230.2 million barrels, which was higher than the forecast of 614,000 barrels.

Conversely, the market trading sentiment failed to extend its lively performance of the previous day, as the bearish appearance of Asia-Pacific stocks and losses in US stocks futures tend to highlight the risk-off market mood. However, the reason behind the risk-off market sentiment could be attributed to the weak US jobs data, rising numbers of COVID-19 infections, and intensifying Sino-US tensions. It should be noted that America recently blacklisted four companies from Russia and China, blaming them for promoting Iran’s missile program. In the meantime, the dragon nation immediately warned Biden over his comments about Taiwan, which further fueled the trade/political tension between the world’s top two economies. Thus, the downbeat mood on the market is playing a major role in limiting gains in the higher-yielding crude oil.

Despite the risk-off-market sentiment, the broad-based US dollar failed to stop the declining streak of the previous day, remaining bearish as doubts persisted over the global economic recovery from the COVID-19 pandemic, which was evident from the downbeat American jobs data. The data reflected 778,000 jobless claims for the past week, which was more than the predicted 730,000 claims and the 748,000 claims submitted the previous week. Besides this, the intensifying number of coronavirus cases in the US also played a major role in undermining the US dollar. However, the losses in the US dollar became the key factor that kept a lid on additional losses in crude oil prices, as the oil price is inversely related to the price of the greenback. Meanwhile, by 10:05 PM ET (2:05 AM GMT), the US Dollar Index, which tracks the greenback against a bucket of many currencies, had dropped by 0.09%, to 91.918, its lowest level in more than two months.

Across the ocean, the gains in crude oil were further bolstered by the hopes that the Organization of the Petroleum Exporting Countries (OPEC) and its partners, a group led by Russia and known as OPEC+, will uphold the current production restrictions, which tends to ease oversupply worries and support the crude oil prices.

On the bearish side, the gains in crude oil were also capped by the intensified fears of rising numbers of COVID-19 cases in the US, Europe and some of the notable Asian nations, which are continually fueling fears of renewed lockdowns in many countries. This has become the key factor that has kept a lid on any additional gains in the crude oil prices. Elsewhere, the Brexit fears remain on the table as fisheries issues continue to hamper the talks, and this is also having a negative effect on crude oil prices.

In the absence of any significant data/events on the day, due to the US holiday, the market traders will keep their eyes on the ongoing drama surrounding the US stimulus package. In the meantime, the risk catalysts, like geopolitics and the virus woes, not to forget the Brexit, will also be key to watch for fresh direction. Good luck!

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