WTI Crude Oil Continues to Dip Despite COVID19 Vaccines – A Quick Fundamental Outlook!
Arslan Butt • 4 min read
During Monday’s Asian trading session, the WTI crude oil prices failed to stop their overnight losing streak, remaining depressed around the $ 46.00 level, as the series of renewed lockdown measures throughout the world is threatening to weaken the crude oil demand yet again, keeping the crude oil prices under pressure. It is worth recalling that the crude oil prices recovered last week, after positive developments concerning the coronavirus (COVID-19) vaccine, but the gains were short-lived or temporary, as Los Angeles county recorded another record high in coronavirus cases. Apart from this, the heavy losses in the crude oil prices could also be attributed to the latest reports suggesting that US energy companies have installed new oil and natural gas rigs for the 11th time in 12 weeks, strengthening oversupply fears and contributing to the losses in crude. In the meantime, the losses in the crude oil prices were further bolstered after Iran told its oil ministry to set up installations for the production and sale of crude oil at full capacity within three months.
On the contrary, the losses in crude oil were capped by the rapid recovery of demand in China, and prevalent hopes of coronavirus vaccines, which tend to revive hopes for a steady rebound in the global energy demand. At the moment, crude oil is trading at $ 46.10, and consolidating in the range between 45.92 and 46.25.
The concerns over the second wave of the coronavirus, coupled with fears of renewed lockdown measures throughout the world, are continuously threateing any recovery in the crude oil demand. The coronavirus (COVID-19) is taking a major toll on the US. As per the latest report; the country keeps reporting record numbers of new cases daily, with Los Angeles county recording another record high in new infections. In the meantime, the restrictions in California call for the closure of bars, tattoo shops and hair salons. Across the pond, the Federal State of Bavaria, in southern Germany, has declared that it will impose stronger lockdown measures from Wednesday, until Jan. 5. Meanwhile, the South Korean authorities have also imposed stricter social distancing rules for the capital Seoul and surrounding areas.
In addition to the US, Europe also imposed stricter lockdown measures last week, which are posing a further threat to the oil demand. These back-to-back lockdown restrictions will have an instant negative effect on transportation fuel, as more people will stay home in the evening hours. This, in turn, poses a threat to the recovery in the crude oil demand, which has led to losses in the crude oil prices.
Besides the virus woes, another reason for the bearish crude oil prices could also be associated with the long-lasting US-China tussle, which is picking up pace continuously. On the flip side, the recovery of Libyan oil production keeps fueling the oversupply worries, and this has also played a major role in undermining the crude oil prices. According to reports, OPEC’s oil output rose by 320,000 BPD in October.
Apart from this, the declines in the crude oil prices were further bolstered after US energy companies increased the numers of oil and natural gas rigs for the 11th time in 12 weeks, even though most producers are cutting production this year and next. Besides this, Iran has urged its oil ministry to prepare installations for the production and sale of crude oil at full capacity within three months, which also raises oversupply concerns and puts further pressure on the crude oil prices.
Moreover, the losses in the US dollar could also be associated with the rising COVID-19 infection rates in the US and Europe, which keep fueling doubts over economic recovery in the US. However, these losses in the US dollar have become the key factor that is helping to limit deeper losses in the crude oil prices, as the price of oil is inversely related to the price of the US dollar. Meanwhile, by 9:43 PM ET (1:43 AM GMT), the US Dollar Index, which tracks the greenback against a bucket of other currencies, had dropped by 0.03%, to 90.767 .
On the bullish side, the losses in the crude oil prices were further capped by the rapid recovery of demand in China, witnessed after China’s exports for November rose at their fastest pace since February 2018, which eventually boosted the hopes of strong global demand. Across the pond, Russia has started COVID-19 vaccination while the UK and the US are also inching closer towards taming the coronavirus pandemic. In the meantime, the Dragon Nation has announced that it proposes to complete the construction of a second production facility by the end of 2020, in an effort to increase annual COVID-19 vaccine production capability to 600 million doses. However, the positive developments concerning the coronavirus (COVID-19) vaccine keep challenging the market risk-off mood, and this is becoming a key factor that is helping to limit deeper losses in the crude oil prices.
In the absence of the any data/events on the day, the market traders will keep their eyes on RBA Gov Lowe’s speech. 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 mention the Brexit, will not lose their importance. Good luck!