Crude Oil Manages to Halt Gains of the Previous Session – All Eyes on EIA Report!
Arslan Butt • 3 min read
During Wednesday’s Asian trading hours, the WTI Crude Oil prices managed to recover their winning streak of the previous week, hitting a multi-month high, above $ 53.00 after the American Petroleum Institute (API) data report showed that the US crude inventories had dropped by more than expected. Furthermore, the energy benchmark got an additional lift from the upbeat sentiment and the weakness of the greenback. The weakness of the US dollar was backed by the upbeat mood on the market, which played a major role in underpinning the crude oil prices, as the price of oil is inversely related to the price of the US dollar. Apart from this, the reason for the gains in crude oil could also be associated with cautiously optimistic comments by the Fed policymakers, suggesting strong economic recovery during the second half of 2021.
Moreover, the gains in crude were further boosted by the reports suggesting that OPEC and its allies have agreed to keep curbing their output, which instantly eased oversupply concerns and contributed to the crude oil gains. On the bearish side, the intensifying coronavirus (COVID-19) woes throughout the world keep fueling the concerns over the global economic slowdown, which could cap the upside momentum for the crude oil prices. WTI Crude Oil is currently trading at 53.87, and consolidating in the range between 53.28 and 53.93.
The American Petroleum Institute shows that domestic crude stockpiles dropped by 5.82 million barrels last week. Moving on, the inventories are expected to decline by 3 million barrels, as per the median prediction of a Bloomberg survey for Wednesday’s US government storage report.
Despite the worsening virus conditions and the fears of a full-fledged trade/political war between the US and China, the market trading sentiment succeeded in regaining ist positive bias of the previous week, remaining supportive on the day, as the bullish appearance of Asia-Pacific stocks and gains in the US Stocks Futures tend to highlight the risk-on mood. The reason for this could be attributed to upbeat comments by Fed policymakers suggesting that pleasing economic numbers will resume from the second half of 2021, which cites strong economic recovery. Apart from this, the increased hopes of mammoth fiscal stimulus by US President-elect Joe Biden and the upbeat results of the COVID vaccines have also played a major role in underpinning the market trading sentiment. However, the positive tone of the market trading sentiment is helping the higher-yielding crude oil prices to stay bid, due to the weakess of the US dollar.
As a result, the broad-based US dollar failed to gain any positive traction, remaining bearish on the day. The US dollar index (DXY) failed to extend its three-day winning streak, while marking the heaviest losses in over a month on the previous day as the upbeat mood of the market decreased the safe-haven demand of the greenback. Therefore, the losses in the US dollar have become a key factor that is keeping a lid on additional losses in crude oil prices, as the price of oil is inversely related to the price of the US dollar. The US Dollar Index, which tracks the greenback against a bucket of other currencies, had dropped by 0.08%, to 89.940, by 9:51 PM ET (2:51 AM GMT).
In contrast to this, the escalating discussions concerning the coronavirus (COVID-19), coupled with tussles between the US and China, keep challenging the market risk-on mood, which could trim gains in the crude oil prices. As per the latest report, the US Centers for Disease Control and Prevention (CDC) announced compulsory coronavirus (COVID-19) testing and negative results for all flight passengers into the US from January 26. In addition to this, the escalating fears of lack of hospitalization capacity in the UK and a downward revision to Japan’s GDP keep questioning the upside momentum of the market.
Looking forward, the market traders will keep their eyes on the official inventory data from the US Energy Information Administration (EIA). Meanwhile, the US Consumer Price Index (CPI) data will be key to watch. In addition to this, the chatter surrounding US President Donald Trump’s impeachment and the virus updates will not lose any significance on the day. Good luck!
About the author
Arslan Butt is our Lead Commodities and Indices Analyst. Arslan is a professional market analyst and day trader. He holds an MBA in Behavioral Finance and is working towards his Ph.D. Before joining FX Leaders Arslan served as a senior analyst in a major brokerage firm. Arslan is also an experienced instructor and public speaker.