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WTI Crude Oil Falls to Stop Declining Streak – Surge in Fuel Demand Underpins!

Posted Tuesday, January 12, 2021 by
Arslan Butt • 3 min read

Today in the Asian trading session, WTI Crude Oil failed to stop its losing streak of the previous day, still hovering close to the $ 52.00 level, as the increasing number of COVID-19 cases globally is contributing to increasing fuel demand worries. Moreover, the bearish sentiment surrounding the crude oil prices got an additional lift after the benchmark Treasury Yields refreshed their 10-month highs, as investors prepare for higher government spending under the incoming Joe Biden administration, which in turn, pushed the US dollar higher and contributed to the oil losses, as the moves of the dollar are usually opposite to those of oil. In contrast to this, US President-elect Joe Biden’s commitment to announce trillions of dollars in new COVID-19 relief measures is easing doubts over the global economic fallout, which could help to limit deeper losses in the oil prices.

Meanwhile, the fresh hopes of a drawdown in the US Crude Oil inventory could also be considered one of the key factors that has kept a lid on any additional losses in the crude oil prices. Besides this, Saudi Arabia’s promise of production cuts has played a major role in supporting crude oil prices. At the moment, crude oil is trading at $ 52.16 and consolidating in the range between 52.08 and 52.35.

The ever-increasing numbers of global COVID-19 cases have pushed more countries, such as China and several European states, into intensive lockdown measures, which has instantly triggered fuel demand worries and contributed to the losses in crude. As per the latest report from Johns Hopkins University, the number of cases globally exceeded 90.87 million as of January. It is worth mentioning that there are approximately 22.6 million cases in the US alone, with over 22,000 deaths from the virus during the previous week. Thus, the COVID woes are keeping the global equity market under pressure, which is pushing the higher-yielding crude oil down.

Elsewhere, the tussle between the US and China is still not showing any sign of slowing down as the US Trump administration prepares for more sanctions. On the other hand, China is showing their dissatisfation towards US interference in Hong Kong and Taiwan. Apart from the US, the UK has also increased hardships for Chinese companies by tightening imports, and the fears of a full-fledged trade/political war between China and the US and China and the UK, keep undermining the crude oil prices.

As a result, the broad-based US dollar managed to extend its gaining streak of the previous day, remaining bullish during the Asian session. In contrast, the upticks in the greenback were rather unaffected by the progress in terms of the US stimulus. The progress over the stimulus package was triggered after the Democratic sweep in the crucial US Senate runoff elections in Georgia. In the meantime, last week’s disappointing US data further fueled the prospects over the US stimulus spending, which pushed the US Treasury bond yields to the highest level since March, adding further positive impact to the US dollar. The upticks in the greenback have become a key factor that has kept the oil prices under pressure, as the weaker USD tends to make it cheaper for holders of other currencies to purchase crude oil.

In contrast to this, US crude oil supply data from the American Petroleum Institute (API) is expected to show a a draw of 1.663 million barrels during the previous week. Moving on, investors are now keeping their eyes on the API data, which is due later in the day. In simple words, the high hopes of a drawdown in the US crude oil inventory are helping to limit deeper losses in the oil prices. Besides this, Saudi Arabia’s commitment to voluntarily cut its oil output by 1 million barrels per day (BPD) in February and March is also supporting the crude oil prices.

Due to the absence of any major data/events on the day, the market traders will keep their eyes on the risk catalysts like geopolitics and the virus woes. Meanwhile, the traders will also pay close attention to MPC Member Broadbent’s speech. Good luck!

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