Crude Oil Price Depressed Below $ 53 – Escalating Coronavirus Weighs!
Arslan Butt • 3 min read
The US Energy Administration shows a surprise build in US crude oil supplies. The sluggish rollout of vaccines is also raising concerns that a recovery in demand will remain doubtful. This was seen as another factor that kept crude oil prices under pressure. On the positive side, the losses in the US dollar helped to limit deeper losses in the higher-yielding crude oil prices, as the price of oil is inversely related to the price of the US dollar. The renewed progress in terms of the US stimulus measures lent some additional support to crude oil, limiting its bearish rally. At the moment, crude oil is trading at $ 52.32, and consolidating in the range between 52.05 and 52.42.
Investors are still cautious about the fuel demand concerns, as the ever-rising number of COVID-19 cases continues to raise doubts over global economic recovery. As per the latest report, the number of cases in the US now exceeds 25 million, while the number of cases globally is headed towards the 100 million mark. On the China front, the Dragon Nation recorded 124 COVID-19 cases on Jan. 24, which was up from the previous 80, marking the worst wave of new infections seen since March 2020, which in turn dampened the demand outlook of the world’s largest oil importer.
Meanwhile, New Zealand was marked as a new victim of the feared virus, after Northland reported one case. Simultaneously, the US is considering re-imposing a ban on visitors from the UK, Ireland and Brazil, and France is set to announce a third lockdown. Furthermore, the virus conditions are also worsening in the UK and Japan. This, in turn, raised questions surrounding the market trading sentiment, becoming a key factor that has kept the crude oil prices under pressure.
Apart from this, another reason for the bearish crude oil prices could also be associated with the data released by the US Energy Information Administration on Friday, which showed a surprise increase in US crude inventories, by 4.4 million barrels, in the week ending Jan. 15, against expectations of a draw of 1.2 million barrels.
Despite the ever-increasing numbers of COVID-19 infections, the market trading sentiment is representing positive performance on the day, as the positive environment surrounding the Asia-Pacific stocks and upticks in the S&P 500 Futures tend to highlight the risk-on mood, which received support due to the optimism over a potential vaccine/treatment for the highly infectious coronavirus. The increasing hopes regarding the US stimulus package, under Joe Biden’s presidency, also played a major role in supporting the market trading sentiment. The hopes of another US stimulus package were sparked after the incoming chairman of the US Senate Budget Committee said that the Democrats would use a rare procedural tactic to pass major parts of a COVID-19 relief package if the Republicans refuse to move on the measure.
As a result, the positive tone regarding the market sentiment favors crude oil, due to the weakness of the US dollar. As a result of the risk-on mood, the broad-based US dollar failed to gain any positive traction, remaining bearish on the day. Meanwhile, the losses in the US dollar could also be attributed to the optimism over the rollout of vaccines for the highly infectious coronavirus. Alternatively, the losses in the greenback could be short-lived or temporary, as the intensified COVID-19 worries and weak European economic data are helping to stop the bearish rally in the safe-haven assets. The losses in the US dollar are helping to limit any further losses in the crude oil prices, as the price of gold is inversely related to the price of the US dollar. By 11:48 PM ET (4:48 AM GMT), the US Dollar Index, which tracks the greenback against a bucket of other currencies, had dropped by 0.10%. to 90.118.
Another factor that might also be capping the losses could be the decision made by the world’s top oil exporter, Saudi Arabia, earlier in the month, to implement additional production cuts, which continues to lend some support to crude oil. In the absence of any major data/events on the day, the market traders will keep their eyes on virus and stimulus headlines, for fresh direction. 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.