WTI Crude Oil Halts its Bullish Bias – Increased Fuel Demand Provides Support! - Forex News by FX Leaders

WTI Crude Oil Halts its Bullish Bias – Increased Fuel Demand Provides Support!

Posted Thursday, January 14, 2021 by
Arslan Butt • 3 min read

Today, during the Asian trading session, WTI Crude Oil failed to extend its winning streak of the previous day, drawing some offers near the $ 53.00 level, as the rising numbers of COVID-19 cases globally contributed to rising fuel demand worries. Furthermore, the bearish sentiment around the crude oil prices got an additional lift after Europe introduced tighter and longer lockdown measures in some countries, in an effort to control the B177 strain of the coronavirus, which was first seen in south-east England in September 2020.

Across the pond, the benchmark Treasury yields refreshed multi-month highs, as investors awaited US President-elect Joe Biden’s plans for further stimulus measures, which in turn pushed the US dollar higher and contributed to the losses in oil, as the dollar usually moves inversely to oil. In contrast to this, the latest drawdown in US crude stocks for a 5th straight week, has become a key factor that is helping to limit deeper losses in the crude oil prices. Meanwhile, President-elect Joe Biden’s promise to announce trillions of dollars in new COVID-19 relief measures has eased worries over the global economic recession, which could lend some support to oil.

In addition to this, Saudi Arabia’s promise regarding production cuts has played a major role in supporting oil prices. At the moment, crude oil is trading at $ 52.84, and consolidating in the range between 52.72 and 52.95. On the data front, the US crude oil supply data from the US Energy Information Administration (EIA) showed a draw of 3.247 million barrels for the week ending Jan. 8. The draw is bigger than the predicted 2.266-million-barrel draw, but smaller than the 8.010-million-barrel draw of the previous week. In addition to this, Tuesday’s data from the American Petroleum Institute showed a draw of 5.821 million barrels.

Despite this supporting data, the ever-increasing numbers of global COVID-19 cases pushed more countries, such as China and several European states, into deep lockdown measures, which instantly triggered fuel demand worries and contributed to crude oil losses. As per the latest report, some countries in Europe have introduced tighter and longer lockdown measures, in an attempt to control the B177 strain of the coronavirus, which was initially seen in south-east England in September 2020. Meanwhile, the Dragon Nation said that the number of new cases in its north-eastern province of Heilongjiang is picking up pace continuously, having almost tripled recently. The spread of the disease in the world’s 2nd-largest oil consumer country fueled the threat ahead of the Lunar New Year holidays in February, as the impact of COVID-19 vaccine rollouts is still not expected to take effect for another 2 to 3 months. Thus, the COVID woes are keeping the energy industry under pressure, which is burdening the higher-yielding crude oil.Elsewhere, the tussle between the US and China remains on the cards, as the US Trump administration is still not refraining from imposing sanctions on China. Apart from the US, the UK has also increased hardships for Chinese companies, by tightening laws on imports. However, the fears of a full-fledged trade/political war between China, and the US and the UK, keeps undermining the crude oil prices.

On the USD front, the broad-based US dollar managed to extend its gains of the previous session, remaining bullish during the Asian session on the day, as traders await US President-elect Joe Biden’s plans for further stimulus measures. The possibility of more stimulus measures weighed in on US government bonds and pushed the benchmark Treasury yield to 1% for the first time since March 2020, leading the greenback to gains in two of the past three trading days. The gains in the greenback were seen as one of the key factors that kept the oil prices under pressure, as a weaker USD tends to make it cheaper for holders of other currencies to purchase crude oil. Meanwhile, by 11:11 PM ET (4:11 AM GMT), the US Dollar Index, which tracks the greenback against a bucket of other currencies, had risen by 0.04%, to 90.373.

In contrast to this, Saudi Arabia’s commitment to voluntarily cut its oil output by 1 million barrels per day (BPD) in February and March, has lent some support to crude oil prices, limiting its losses. Besides this, more plans for stimulus measures, that are expected to be announced by US President-elect Joe Biden later in the day, are likely to help the oil prices.

Moving on, market traders will keep their eyes on the US weekly jobless claims and Fed chief Jerome Powell’s speech, which are due later in the NA session. Apart from this, Biden’s speech will be the key driver in the coming days. Across the ocean, the risk catalysts, like geopolitics and the virus woes, will be key to watch. Good luck!

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About the author

Arslan Butt // Index & Commodity Analyst
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.
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