Crude Oil Bullish Bias Continues Amid Weaker Dollar- Eyes on API Figures! - Forex News by FX Leaders

Crude Oil Bullish Bias Continues Amid Weaker Dollar- Eyes on API Figures!

Posted Wednesday, January 20, 2021 by
Arslan Butt • 3 min read

During Wednesday’s Asian trading hours, WTI Crude Oil succeeded in maintaining its bullish rally of the previous session, drawing further bids around the $ 53 level. However, the prevalent bullish bias around the crude oil prices was mainly tied to the increasing expectations that the incoming Joe Biden administration will push through more massive US stimulus measures, which boosted the hopes for the fuel demand and a drawdown in crude oil stocks.

It is worth explaining that US Treasury Secretary nominee Janet Yellen recently pushed for a massive fiscal relief package, which boosted the investor’s hopes about growth and economic recovery after COVID-19. Meanwhile, the broad-based weakness of the US dollar, triggered by the upbeat market mood, also played a major role in supporting the crude oil prices, as the price of oil is inversely related to the price of the US dollar.

Conversely, the intensified concerns about COVID-19 cases and economically-painful hard lockdowns keep challenging the upside momentum in crude oil. Across the pond, the crude oil buyers did not pay much attention to the latest reports suggesting that the International Energy Agency has cut its outlook for the 1st-quarter oil demand by 580,000 barrels per day, amid border closures and extended lockdowns in Europe, in an effort to stop soaring rates of COVID-19 infections. WTI Crude Oil is currently trading at 53.40, and consolidating in a range between 53.07 and 53.45. Moving on, the traders seem cautious to place any strong positions ahead of US crude oil supply data from the American Petroleum Institute, which is due later in the day.

The S&P 500 Futures succeeded in maintaining its positive performance of the previous 3 days, hitting a record high on the day. Behind this positive performance were the upbeat comments by Secretary of the Treasury nominee Janet Yellen, calling for more COVID-19 relief spending. As per the latest report, during her Senate confirmation hearing before the Senate Finance Committee, Yellen pushed Congress to “act big” on COVID- 19 relief, and not worry too much about debt. These positive comments helped the risk tone to stay positive and turned investors away from the safe-haven US currency.

Across the ocean, the better-than-expected ZEW economic sentiment survey in Germany also played a dominant role in underpinning the market trading sentiment. The bullish tone of the global market sentiment favors the crude oil buyers, because of the weak US dollar.On the USD front, the broad-based US dollar failed to stop its bearish moves of the previous day, remaining depressed on the day, as the demand for safe-haven assets decreased amid progress toward agreeing on massive US fiscal stimulus. It is also worth mentioning that the US Treasury yields dropped after Yellen announced that tax cuts for large corporations, enacted in 2017, should be repealed, which has added a further burden to the greenback. However, the losses in the US dollar helped crude oil to stay bid. Meanwhile, by 9:17 PM ET (2:17 AM GMT), the US Dollar Index, which tracks the greenback against a bucket of other currencies, had dropped by 0.11%, to 90.365

Alternatively, the International Energy Agency has cut its outlook for the first-quarter oil demand by 580,000 barrels per day, amid border closures and tight lockdowns in Europe, in an attempt to stop soaring COVID-19 infections. These negative reports failed to leave any meaningful impact on the crude oil prices, as oil gained positive traction from the upbeat market mood and the weaker greenback.

Meanwhile, the worries about rising numbers of COVID-19 cases and economically painful hard lockdowns keep challenging the upbeat market performance. This has become a key factor that could cap the gains in crude oil prices. As per the latest report, the US death toll from the coronavirus now exceeds 401,000, and the number of cases in the country is over 24 million, as of Jan. 20. In addition to this, the record daily coronavirus-related deaths in the UK and extended lockdowns in Germany keep challenging the upbeat market trading sentiment and contributing to the gains in the GOLD prices. Meanwhile, the data also shows that the number of cases globally has topped 96 million. Another factor that could be questioning the risk-on sentiment could be the reports of a likely shortage of vaccine in New York and the postponement of delivery of Pfizer’s vaccine to Canada.

Today, investor focus will remain on the US crude oil supply data from the American Petroleum Institute, which is due later in the day. Meanwhile, the traders will also closely observe Biden’s speech in the White House. The inflation data from the UK, Europe and Canada will also decorate the calendar on the day. The risk catalysts, like geopolitics and the virus woes, will continue to play a major role. 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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