Bullish Trading in Crude Oil in Play, Amid Saudi Arabian Production Cut!
During Thursday's Asian trading hours, the WTI crude oil succeeded in extending its previous three-day winning streak and edged higher towar
Arslan Butt•Thursday, January 7, 2021•3 min read
During Thursday’s Asian trading hours, WTI Crude Oil succeeded in extending its previous three-day winning streak, edging higher towards the $ 51 level after breaking above the $ 50 level for the first time since February. However, the prevalent bullish bias surrounding the crude oil prices was mainly tied to the bigger-than-expected drop in US crude stockpiles, which instantly soothed the oversupply worries and contributed to the gains in crude. Meanwhile, the crude oil prices got an additional lift after Saudi Arabia promised to cut production further in Febraury, by one million barrels a day.
Besides this, the optimism over a possible coronavirus vaccine and the likelihood of an additional US financial aid package also played a major role in underpinning the crude oil prices. The upbeat market sentiment, in the wake of the Democrat’s surprise sweep in Georgia, lends further support to the higher-yielding crude oil prices. As a result of the upbeat market mood, the weakness of the broad-based US dollar is also helping the upside momentum in oil, as the price of oil is inversely related to the price of the US dollar. Alternatively, the heightened concerns about the rise in COVID-19 cases and economically painful hard lockdowns have become a key factor that could cap crude oil gains. In the meantime, the long-lasting Sino-US tussle is also leaving a negative impact on crude oil prices. WTI crude oil is currently trading at 51.09, and consolidating in the range between 50.39 and 51.14.
On the data front, the US crude oil supply data from the Energy Information Administration shows that US crude stockpiles declined by 8.1 million barrels last week, which was more than the median estimate of a drop of 2.7 million barrels. Furthermore, the crude oil prices got an additional lift after the remarkable pledge from Saudi Arabia to cut crude output further in February, by one million barrels a day. It is worth recalling that Saudi Arabia, the world’s biggest oil exporter, announced that they would cut production by one million barrels per day (BPD) in February and March, after OPEC+, a group consisting of the Organization of the Petroleum Exporting Countries and other producers, including Russia, met earlier this week. These positive moves have helped the American crude benchmark break decisively above $ 51 a barrel for the first time since February.Across the ocean, the upticks in the crude oil prices could also be associated with the upbeat market mood, backed by the Democrat’s surprise sweep in Georgia. It is worth recalling that the Democrats won both of the Senate seats up for grabs, clearing themselves 50 seats in total for the next Congressional term, against the 50 seats held by the Republicans. The Democrats’ victories in Senate elections in Georgia are likely to clear the way for more US stimulus packages, which will support the energy demand in the world’s biggest economy.
On the USD front, the broad-based US dollar failed to put a stop to its early-day bearish moves, edging lower on the day, as demand for safe-haven assets decreased, amid progress toward agreeing on the US fiscal stimulus. Moreover, the declines in the greenback could also be associated with hopes that the Fed will keep interest rates lower for an extended period. However, the losses in the US dollar helped crude oil to stay bid. By 11:31 PM ET (4:31 AM GMT), the US Dollar Index, which tracks the greenback against a bucket of other currencies, had dropped by 0.12%, to 89.392
In contrast to this, the worries about rising numbers of COVID-19 cases and economically painful hard lockdowns keep challenging the upbeat market performance, which has become a key factor that could cap gains in the crude oil prices. As per the latest report, the UK recorded more than 1,000 daily deaths for the first time since April, Japan is ready to declare a state of emergency in Tokyo and surrounding areas, and China has reported more infections near Beijing.
Moving ahead, the market traders will keep their eyes on the release of the US ISM Services PMI for December, which is expected to come in at 54.5, against 55.9. Meanwhile, the updates on the Sino-US tussle and the virus woes did not lose their importance on the day. Good luck!
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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