Crude Oil Manages to Gain Positive Traction – OPEC Limits Supply! - Forex News by FX Leaders

Crude Oil Manages to Gain Positive Traction – OPEC Limits Supply!

Posted Friday, December 4, 2020 by
Arslan Butt • 3 min read

During Friday’s Asian trading session, the WTI crude oil prices managed to extend their overnight bullish bias. They refreshed the 9-month high above the mid-$ 46.00 level, mainly due to the agreement between the major oil producers, to continue with the COVID-19-induced production cuts into 2021, in order to meet the lessened demand due to the coronavirus pandemic. This has eased oversupply fears and contributed to the gains in crude oil prices. Furthermore, the hopes over the coronavirus (COVID-19) vaccines, coupled with the expectations of a US COVID-19 stimulus package, keep weighing on the US dollar, which is seen as one of the key factors that has pushed the oil prices higher, as the price of oil is inversely related to the price of the US dollar.

The upbeat market sentiment also played a major role in underpinning the higher-yielding crude oil prices. As a result, the upbeat market mood was supported by the hopes surrounding coronavirus vaccines, as we have already mentioned. Meanwhile, the reason for the gains in crude could be associated with fresh reports suggesting that the Congressional Republicans are pushing for a slimmed-down $ 500 billion package, which was previously rejected by the Democrats, as they argued the case for a bigger price tag. On the bearish side, the gains in the crude oil prices could be short-lived, as the concerns about the escalation of the COVID-19 pandemic keep fueling fears of renewed lockdowns in several countries, which are undermining the fuel demand. WTI crude oil is currently trading at 46.46, and consolidating in the range between 45.62 and 46.56.

The market trading sentiment represents a positive performance on the day, as the bullish appearance of Asia-Pacific stocks, and gains in the US stocks futures tend to highlight the risk-on mood. However, the reason behind the risk-on market sentiment could also be attributed to the renewed optimism over a possible vaccine for the highly infectious coronavirus. This was witnessed after the S&P 500 Futures came close to a multi-year high, whereas stocks in the Asia-Pacific trade were mixed. As a result, the upbeat market sentiment played a major role in underpinning the higher-yielding crude oil prices.

It is worth recalling that the vaccine news suggests that the world will soon have a cure for the coronavirus pandemic. In the meantime, Moderna and Pfizer are gaining major attention, and the US has approved Pfizer’s vaccine. Apart from this, the reason for the gains in equity markets could also be associated with fresh reports suggesting that the Republicans in the US Congress delivered a more upbeat tone during coronavirus aid talks on Thursday, as they are pushing for a slim $ 500 billion stimulus package. Thereby, the upbeat market sentiment played a major role in underpinning the higher-yielding crude oil prices, by undermining the US dollar.

As a result, the broad-based US dollar failed to gain any positive traction, remaining bearish on the day, as doubts persist over the global economic recovery from COVID-19. Besides this, the risk-on market sentiment, backed by the optimism over a potential vaccine for the highly contagious coronavirus, also played a major role in undermining the safe-haven US dollar. However, the losses in the US have became a key factor that is keeping a lid on any additional losses in crude, as the oil price is inversely related to the price of the US dollar. Meanwhile, the US Dollar Index, which tracks the greenback against a bucket of other currencies, has dropped to 90.703.Across the ocean, the sentiment surrounding crude oil was further improved after Thursday’s ministerial meeting, when the Organization of the Petroleum Exporting Countries and its allies (OPEC+) agreed to ease production cuts by 500,000 barrels per day (BPD) from January 2021. This increase in production means that the Organization of the Petroleum Exporting Countries (OPEC) and Russia, a group known as OPEC+, will reduce production by 7.2 million BPD, or 7% of the global demand, from January, compared with current cuts of 7.7 million BPD.

On the bearish side, the gains in crude oil could be capped by the on-going fears of rising numbers of COVID-19 cases in the US, Europe and some of the notable Asian nations, which is continually fueling fears of renewed lockdowns in several countries, and has become the key factor that has kept a lid on any additional gains in the crude oil prices. In the meantime, the fresh US travel restrictions for members of the Chinese Communist Party and their families and a ban on Xinjiang cotton imports keeps challenging the market risk-on mood, which is likely to cap further upside momentum for the crude oil prices.

Looking ahead, the market traders will keep their eyes on the US employment data for November, which is likely to entertain market players amid a light calendar. All in all, the updates surrounding the Brexit, the coronavirus, and the US stimulus package will not lose their significance. Good luck!

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About the author

Arslan Butt // Index & Commodity Analyst
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.
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