WTI Crude Oil Extends Overnight Gains Despite Risk-off Sentiment – A Quick Outlook! - Forex News by FX Leaders

WTI Crude Oil Extends Overnight Gains Despite Risk-off Sentiment – A Quick Outlook!

Posted Friday, January 15, 2021 by
Arslan Butt • 3 min read

During Friday’s Asian trading hours, WTI Crude Oil succeeded in extending its overnight winning streak, edging higher towards the mid-$ 53 level. However, the bullish bias surrounding the crude oil prices was being supported by the bigger-than-expected drop in US crude stockpiles, which instantly eased the oversupply worries and contributed to the gains in crude. Furthermore, the oil prices got an additional lift after Saudi Arabia promised to cut production further, by 1 million barrels a day in February. Fed Chair Jerome Powell is expected to speak at 17:30GMT and any dovishness in his speech will lend further support to crude oil.

It is worth mentioning that US President-elect Joe Biden is expected to reveal his plans for the next round of US fiscal stimulus (which could be worth $ 2T), at around 00:15GMT. On the bearish side, the heightened concerns about the numbers of COVID-19 cases and economically painful hard lockdowns throughout the world have become a key factor that could cap gains for crude oil. In the meantime, the long-lasting Sino-US tussle and geopolitics in the Middle East, namely the tensions between Iran and the US, also keep challenging the upside momentum in crude oil . WTI Crude Oil is currently trading at 53.63, and consolidating in a range between 53.59 and- 53.83.

Despite the optimism over the coronavirus vaccines and the probability of an additional US financial aid package, the S&P 500 Futures has been flashing red since the day started, and the reason for this could be attributed to the long-lasting US-China tussle and increasing market worries about the ever-increasing number of coronavirus cases. As per the latest report, US President Donald Trump is imposing sanctions on officials and organizations for alleged offenses in the South China Sea, and has asked for an investment ban on nine more Chinese firms with suspected ties to the Chinese military, including planemaker Comac and phone maker Xiaomi (OTC: XIACF) Corp. The Chinese embassy has retaliated, citing the Foreign Ministry comments of Jan. 7, and blames Washington for “pinning political and ideological labels on economic and trade issues and exploiting its state power to crack down on foreign companies, under the pretext of national security.” These moves will further increase the tensions with China.

Furthermore, the market sentiment losses were further bolstered by the worries about rising numbers of COVID-19 cases and the economically damaging hard lockdowns. As per the latest report, the global lockdowns are getting more aggressive day by day. This was witnessed after France introduced a new nationwide lockdown, starting from 18:00GMT, while German Chancellor Merkel reportedly wants to toughen the German lockdown. In addition to this, over 22M people are currently under strict lockdown conditions in China’s Hebei province, which surrounds Beijing. The lockdown was imposed after the country posted the largest number of new COVID-19 infections in over 5 months on Wednesday.

The broad-based US dollar succeeded in stopping its losing streak of the previous day, and we saw it edge higher during the early Asian session, as investors went for the safe-haven assets, in the wake of a risk-off market sentiment. The gains in the US dollar seem relatively unaffected by the progress in terms of the US stimulus package, which tends to undermine the US currency. As we have already mentioned, US President-elect Joe Biden is expected to reveal his plans for the next round of US fiscal stimulus (which could be worth a whopping $ 2T) at 00:15GMT. Thereby, the gains in the US dollar have become a major factor that is keeping the WTI prices down, as the price of crude oil is negatively correlated to the price of the US dollar.

Moving ahead, the market traders will keep their eyes on the release of US Core Retail Sales m/m along with Retail Sales m/m. Apart from this, President-Elect Biden’s speech will also be closely followed. Meanwhile, the UK GDP m/m and Goods Trade Balance are also expected to be released later on the day. The updates surrounding the Sino-US tussle and the virus woes will continue to have a significant effect on the day. 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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