Bullish Bias in Crude Oil Continues – All Eyes on OPEC Meeting

Bullish Bias in Crude Oil Continues – All Eyes on OPEC Meeting

During Thursday’s Asian trading session, WTI Crude Oil failed to extend its overnight winning streak, as it came under some selling pressure, below the $ 48.50 level, amid the cautious market sentiment ahead of an OPEC+ series of meetings to discuss whether they will ease production cuts or not. Aside from this, the intensifying concerns regarding the fuel demand, due to the spread of the new B177 strain of the COVID-19 virus, coupled with the renewed lockdown restrictions, overshadowed the progress in terms of vaccines, which contributed to the losses in crude. The progress with the COVID-19 vaccines failed to keep the buyers happy for long. Meanwhile, the fears of a full-fledged trade/political war between the European Union and the US is also playing a major role in undermining the crude oil prices. In contrast to this, the better-than-expected US crude oil supply data recently sparked hopes over recovery of the fuel demand, which has turned out to be one of the leading factors that is helping to limit the losses in the oil prices.

Furthermore, the weakness of the greenback could also be considered a leading factor that is helping the crude oil prices to probe their bearish bias, as the price of oil is inversely related to the price of the US dollar. Besides this, the crude oil losses were also capped by the progress in COVID-19 vaccines and the passing of the UK’s Brexit trade deal with the European Union (EU). At the moment, crude oil is trading at $ 48.34, and consolidating in a range between 48.13 and 48.40.

Despite the upbeat US crude oil supply data from the EIA, the crude oil prices failed to gain any positive traction on the day, as multiple negative factors have dominated this positive news. Anyhow, the US Energy Information Administration (EIA) registered a draw of 6.065 million barrels in supplies for the week ending December 25. Notably, the draw was much bigger than the 2.583-million-barrel draw in the forecasts and the 562,000-barrel draw of the previous week. This report came after Tuesday’s crude oil supply data from the American Petroleum Institute, which showed a draw of 4.785 million barrels.

Despite the latest vaccine progress, the intensified fuel demand concerns due to the spread of the new B177 strain of the COVID-19 virus and the renewed lockdown restrictions kept the market trading sentiment under pressure. As per the latest report, the US state of California has registered the second case of the coronavirus variant, which was initially identified in the UK. This strain of the virus has a faster transmission rate than the old version, and this news has put a damper on investor sentiment. Elsewhere, the declines in equity markets were further bolstered after the US Trade Representative imposed additional tariffs on German and French products, including wine, aircraft parts, etc., hence the downbeat market sentiment is playing a major role in undermining the higher-yielding crude oil prices.

Furthermore, the bearish bias in crude oil could also be associated with the downbeat Chinese data, which showed a slowdown in Chinese factory activity growth. On the data front, the manufacturing Purchasing Managers Index (PMI) came in at 51.9, which was down from the expectations of 52 in the forecasts and November’s figure of 52.1. Meanwhile, the non-manufacturing PMI came in at 55.7, which was also down from the previous month’s figure of 56.4.

Another interesting bit of news is that the Organization of the Petroleum Exporting Countries and allies, or OPEC+, will have a series of meetings next year, to discuss whether or not OPEC+ will ease production cuts. However, the chances of easing production cuts is making investors curious.

In contrast to this, a third vaccine has gained administrative approval. Yesterday, the COVID-19 Vaccine AstraZeneca (NASDAQ: AZN), previously AZD1222, developed by AstraZeneca PLC (LON: AZN) and the University of Oxford, gained approval from the UK Medicines and Healthcare products Regulatory Agency for emergency supply and active immunization of individuals 18 years or older. The latest vaccine progress turned out to be one of the key factors that is helping to limit deeper losses in the crude oil prices.

In the meantime, the passing of the UK’s Brexit trade deal with the European Union (EU) also favors the crude oil prices. As per the latest report, the Queen approved the post-Brexit trade deal between the UK and the European Union yesterday. This approval came after the House of Lords granted the bill to approve the deal in an unopposed third reading on Wednesday, with MPs voting it through by 521 votes to 73.

Despite the risk-off market mood, the broad-based US dollar failed to gain any positive traction, remaining depressed on the day, amid lingering vaccine hopes and the likelihood of further monetary easing by the US Federal Reserve. However, the losses in the US dollar could also be associated with the worsening coronavirus (COVID-19) conditions in the United States, which keep sparking fears of an economic slowdown in America.

Looking forward, the traders will keep their focus on the US Initial Jobless Claims for the week ending on December 25. The expected figure is 833K, versus the previous 803K. In addition to this, the updates on the US stimulus package and 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!