Crude Oil Retraces Back to the $ 44 Mark – All Eyes on the OPEC Decision!

During Wednesday's Asian trading session, the [[WTI]] crude oil prices failed to end its previous two-day declining streak and remained bear

Arslan Butt•Wednesday, December 2, 2020•3 min read

During Wednesday’s Asian trading session, the WTI crude oil prices failed to halt the declining streak of the previous two days, remaining bearish around the $ 44.00 level, due to the surprise build in US crude oil inventories, which eventually fueled fears of oversupply and contributed to the losses in crude. Apart from this, the drop in the crude oil prices could also be associated with the cautious investor sentiment ahead of an OPEC+ meeting to decide whether the OPEC+ organization will continue with the current production cuts of 7.7 million barrels per day, or whether the cuts will be ended.

Besides this, the worries over the intensifying coronavirus situation in the US and Europe keep fueling doubts about economic recovery, which is adding a further burden to the crude oil prices. Furthermore, the long-lasting uncertainty over the Brexit trade talks, and fears of an intensified trade/political war between the West and China, has also hurt the crude oil prices. Conversely, the on-going weakness of the US dollar, triggered by a combination of factors, could also be considered one of the key factors that is helping to probe bearish moves in the crude oil prices, as the price of oil is inversely related to the price of the US dollar. At the moment, crude oil is trading at $ 44.16, and consolidating in the range between 43.92 and 44.38.

As we have already mentioned, the downbeat inventory data, along with OPEC’s decision to postpone a meeting on Monday, thereby delaying any decision over its plans on output cuts for 2021, has been weighing on oil prices. The surprise build in oil inventories in the United States suggests a decline in US oil demand, amid the resurgence of the coronavirus, which has fueled instant fears of oversupply, weighing on the crude oil prices. On the data front, the data released by the American Petroleum Institute showed a 4.146-million-barrel build for the week ending Nov. 27, against the prediction of a 2.272-million-barrel draw. The previous week, we saw a 3.8-million-barrel build.

Apart from this, the losses in the crude oil prices were bolstered by OPEC’s failure to arrive at any production-linked decision during the Joint Ministerial Monitoring Committee (JMMC) on Monday, which created more curiosity among the investors, as to whether OPEC+ will continue with the current production cuts of 7.7 million barrels per day, or put a stop to them. It is worth recalling that the OPEC group imposed output cuts of 7.7 million barrels per day (BPD) earlier this year, as the coronavirus pandemic cut into the fuel demand. It is broadly expected that these reductions will be carried over into January-March 2021, amid spikes in the numbers of COVID-19 cases.

Elsewhere, the fears of rising numbers of coronavirus (COVID-19) cases in the US, Europe and some of the notable Asian nations continue to fuel concerns over global economic recovery, which is putting further pressure on the crude oil prices. As per the latest report, the coronavirus (COVID-19) figures in the US and Europe are getting worse day by day. Meanwhile, the Brexit woes and talks surrounding the tensions between the Dragon Nation and the West are putting an additional burden on crude oil prices.

Across the ocean, the pessimism surrounding the equity market was rather unaffected by the optimism over potential vaccines for the highly dangerous coronavirus infection. It is worth reporting that the pharmaceutical authorities in the US, the UK and Europe will soon approve coronavirus vaccines that have shown approximately 90% effectivity rates during their final trials, which in turn has boosted the hopes of the early availability of the much-awaited cure for the pandemic. This positive development is likely to help limit deeper losses in the crude oil prices.

On the USD front, the broad-based US dollar failed to stop its bearish moves of the previous day. It took further offers during the Asian session, as doubts over US economic recovery from the COVID-19 pandemic remain on the cards, as witnessed after the weaker-than-expected manufacturing activity data for November, including the ISM Manufacturing Purchasing Managers Index (PMI). All of this tends to undermine the American currency.

Furthermore, the US Federal Reserve’s expectations of further monetary easing are also weighing on the greenback. Besides this, the encouraging data from COVID-19 vaccine developers is urging investors towards riskier currencies and higher-yielding assets, against the safe-haven assets, which eventually led to losses in the safe-haven US dollar. However, the losses in the US dollar have became a key factor that has limited any additional losses in crude, as the oil price is inversely related to the price of the US dollar. Meanwhile, by 11:31 PM ET (3:31 AM GMT), the US Dollar Index, which tracks the greenback against a basket of other currencies, had dropped by 0.16%, to 91.148 . It is also worth recalling that overnight, the dollar hit 91.263, which is its lowest level since April 2018.

Looking forward, the market traders will keep their eyes on crude oil supply data from the US Energy Information Administration, which is due later in the day. In addition to this, the updates about the US stimulus package will also be key to watch. In the meantime, the risk catalysts, like geopolitics and the virus woes, not to forget the Brexit, will not lose any significance. Good luck!

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ABOUT THE AUTHOR See More

Arslan Butt

Index & Commodity Analyst

Arslan Butt serves as the Lead Commodities and Indices Analyst, bringing a wealth of expertise to the field. With an MBA in Behavioral Finance and active progress towards a Ph.D., Arslan possesses a deep understanding of market dynamics. His professional journey includes a significant role as a senior analyst at a leading brokerage firm, complementing his extensive experience as a market analyst and day trader. Adept in educating others, Arslan has a commendable track record as an instructor and public speaker. His incisive analyses, particularly within the realms of cryptocurrency and forex markets, are showcased across esteemed financial publications such as ForexCrunch, InsideBitcoins, and EconomyWatch, solidifying his reputation in the financial community.