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Crude Oil Fails to Extend its Bullish Bias of the Previous Session – A Quick Fundamental Outlook!

During Friday’s Asian trading session, the WTI crude oil prices failed to extend their winning streak of the previous day, edging lower, close to the $ 48.17 level, as the ever-rising numbers of COVID-19 cases and tougher lockdown restrictions in the UK and Europe keep threatening the fuel demand and contributing to the losses in crude oil. Apart from this, the Organization of Petroleum Exporting Countries and allies, or OPEC+, has cut its forecast for the recovery in fuel demand in 2021 by 350,000 barrels per day, as coronavirus infection rates continue to rise sharply. This, in turn, added to the burden on the crude oil prices.

In contrast to this, the upbeat market sentiment, backed by the hopes of coronavirus vaccines and Brexit talks, has helped to limit deeper losses in the higher-yielding crude oil prices. Apart from this, the broad-based US dollar failed to stop its long bearish bias, dropping by 1.2% for the week so far, which has also limited the losses in crude, as the oil price is inversely related to the price of the US dollar. Another factor that capped the losses in crude oil was the fresh hope over the recovery of the Chinese economy. At the moment, crude oil is trading at $ 48.25 and consolidating in the range between 48.17 and 48.43.

As we have already mentioned, the ongoing fall of the crude oil prices was exclusively sponsored by the fears of ever-rising numbers of COVID-19 infections, which led to renewed lockdown measures throughout the world and threatened the recovery of the crude oil demand. As per the latest data, the incidence of coronavirus cases is still not showing any signs of slowing down, which has urged the authorities in the US and Europe to announce back to back restrictions on activities, in an effort to curb the spread of the virus. This, in turn, is putting more and more pressure on the Organization of the Petroleum Exporting Countries and allies (OPEC+) to limit the oil supply. In this way, OPEC+ is currently considering adding 500,000 barrels per day (BPD) to the market supply from January onwards, which is the first step towards resuming the supply of 2 million BPD to the market.

The reason for the bearish crude oil prices could also be associated with the long-lasting US-China tussle, which is continuously picking up pace, as the US continues to impose fresh sanctions on diplomats from Beijing. Elsewhere, the Brexit issue remains on the cards, amid mixed headlines, which is keeping market players on edge. However, these mixed headlines also played a major role in undermining the crude oil prices.

On the USD front, the broad-based US dollar failed to stop its long-term bearish streak, dropping towards its worst week in one month, as demand for the safe-haven assets declined, amid progress toward agreeing on the US fiscal stimulus bill. It is worth mentioning that the US dollar is down by 1.2% for the week so far, and has dropped by 12.7% from a 3-year peak in March, falling to 89.862, just above the 2-and-a-half-year low seen on the previous day. Besides this, the US dollar losses could also be associated with Powell’s dovish comments on inflation. Let me remind you that the US Federal Reserve has promised to keep interest rates low until economic recovery is secure. In the meantime, the Fed has also pledged to maintain its bond-buying program until “substantial further progress” in restoring full employment and hitting the 2% inflation target. However, the losses in the US dollar helped limit the drop in the crude oil prices, as the price of oil is inversely related to the US dollar price. In the meantime, by 9:24 PM ET (2:24 AM GMT), the US Dollar Index, which tracks the greenback against a basket of other currencies, had dropped by 0.15%, to 89.817.

Looking ahead, the market traders will keep their eyes on UK Retail Sales m/m, which are scheduled for release later in the day. Meanwhile, the German PPI m/m data will also be key to watch. Apart from this, the updates surrounding the Brexit, the coronavirus and the US stimulus package will not lose their importance. Good luck!

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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.
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