Crude Oil Soars Dramatically Over $ 50 – Bullish Bias Dominates!

Today, during the Asian trading hours, WTI Crude Oil managed to extend its long bullish bias, remaining positive near an 11-month high, above the $ 51.00 level. It is worth recalling that the crude oil prices managed to break above the $ 51.00 level for the first time since February 25, during Thursday’s Asia Pacific session. However, the bullish sentiment affecting the crude oil prices was supported by Saudi Arabia’s commitment to making voluntary cuts to its output, which further boosted the oil market, even as worries increase over the declining fuel demand, due to rising numbers of COVID-19 cases and intensified restrictive measures. The reason for the gains in crude could also be attributed to the reports suggesting that the new Democrat-controlled government is expected to spend and borrow massively, in an effort to support the economic recovery in the United States. Furthermore, the optimism over coronavirus vaccines and upbeat US data also played a major role in underpinning the crude oil prices.

In contrast to this, the ever-increasing numbers of COVID-19 cases globally, which is resulting in tighter restrictive measures, has become a key factor that has kept a lid on any additional gains in the crude oil prices. Meanwhile, the upticks in the broad-based US dollar, backed by the upbeat US data, was also seen as one of the key factors that has capped the upside momentum in crude oil, as the price of oil is inversely related to the price of the US dollar. At the moment, WTI Crude Oil is trading at 51.06, and consolidating in the range between 50.83 and 51.20.

The S&P 500 Futures succeeded in extending the long winning streak, crossing above the 3,800 level for the first time on the day. The expectations for higher government spending under the Biden administration and the Democrat-controlled Congress were behind this positive performance. Apart from this, the upticks in the S&P 500 Futures could also be associated with the upbeat US economic data, which showed better performance of the US economy over the last few weeks. Another reason behind the market’s positive performance could also be attributed to the optimism over the rollout of vaccines for the highly contagious coronavirus. This, in turn, was seen as one of the key factors that underpinned the crude oil prices.

On the US data front, the December ISM Services PMI unexpectedly climbed to 57.2, from 55.9 in November, against the expectations for a decline to 54.6. Meanwhile, the sub-indices were mostly strong, with New Orders rising to 58.5, from 57.2 and Business Activity surging to 59.4, from 58.0.Besides this, the sentiment surrounding the crude oil prices is also being supported by Saudi Arabia’s promise of voluntary production cuts, which continued boosting the oil market, despite the on-going worries over the declining fuel demand, due to rising numbers of COVID-19 cases and intensified restrictive measures. It is worth recalling that Saudi Arabia will cut output by an additional 1 million barrels per day (BPD) in February and March. The world’s biggest oil exporter made this commitment after the Organization of the Petroleum Exporting Countries and allies, or OPEC+ concluded its Joint Ministerial Monitoring Committee and the 13th OPEC and non-OPEC Ministerial Meeting earlier in the week.

Despite the risk-on market sentiment, the broad-based US dollar managed to extend its overnight gains, drawing some further bids on the day, as the hopes of larger government borrowing pushed the benchmark 10-year US Treasury yields higher, which in turn eased the bearish pressure surrounding the greenback. Apart from this, the upbeat US data boosted the hopes over the economic recovery in the US, which helped the USD to stay bid. However, the gains in the US dollar have become a key factor that could cap further upside momentum for crude oil, as the weaker USD tends to make it cheaper for holders of other currencies to purchase crude oil. By 9:07 PM ET (2:07 AM GMT), the US Dollar Index, which tracks the greenback against a bucket of other currencies, had dropped by 0.14%, to 89.907.

Conversely, the concerns about rising numbers of COVID-19 cases, and the intensifying lockdowns keep challenging the upside momentum in crude oil. As per the latest report, Australia’s third-largest city of Brisbane has recently imposed a 3-day lockdown, which is expected to start later in the day; meanwhile, Japan is already considering declaring a state of emergency for the Greater Tokyo area on Thursday. On the other hand, China has also reported the largest increase in daily cases in more than five months, and the US has witnessed a record daily death toll of over 4,000.

Moving ahead, the market traders will keep their eyes on the release of employment data, including non-farm payrolls, which is due to be released later in the day. Meanwhile, the updates surrounding the Sino-US tussle and the virus woes did not lose their importance on the day. Good luck!