Crude Oil Extends Winning Streak to Reach Over $ 56 – A Fundamental Outlook!

During Thursday’s Asian trading session, WTI Crude Oil printed a 4-day winning streak, hitting a multi-month high well above $ 56.00, mainly due to the upbeat EIA reports, which showed a surprise draw in US Crude Oil Supplies. Meanwhile, the upbeat market mood and hopes of a global economic recovery from COVID-19 also played a major role in supporting the crude oil prices. Apart from this, the bullish bias surrounding the oil prices could also be attributed to the progress towards passing US President Joe Biden’s $ 1.9 trillion stimulus package, which had an additional positive impact on the prices of crude.

Another factor that could also be supporting the positive oil sentiment could be the latest reports from the Organization of the Petroleum Exporting Countries and allies, or OPEC+, suggesting their commitment, at a meeting on Wednesday, to uphold a reduced output policy. On the other hand, the growing numbers of COVID-19 cases globally keep pushing more countries into deeper lockdown measures, resulting in increased fuel demand worries, which in turn is capping the gains in crude oil. Another aspect that is limiting the gains in the oil prices is the stronger US dollar, as the oil price is inversely related to the price of the greenback. WTI Crude Oil is trading at 56.06 and consolidating in a range between 55.77 and 56.24.

The market trading sentiment extended its previous three-day positive performance, still flashing green on the day, possibly due to progress in the United States towards passing President Joe Biden’s $ 1.9 trillion stimulus package. This was triggered after US lawmakers inched closer to approving the president’s generous COVID-19 aid bill without Republican support. Furthermore, the recent upbeat US economic data and the news of ex-ECB President Mario Draghi’s entry into politics as the Prime Minister of Italy, lent additional support to the market trading sentiment. The developments on the coronavirus vaccine front, that suggest a speedy global recovery during 2021, could also be supporting the market sentiment. Overall, the upbeat market trading sentiment was seen as one of the key factors underpinning the crude oil prices.

Apart from this, the crude oil prices got an additional lift when OPEC+ promised to extend their reduced output policy at a meeting on Wednesday. This could possibly be attributed to the uncertain fuel demand, as the COVID-19 pandemic fears remain on the cards.

On the other side of the ocean, another reason for the bullish bias surrounding the crude oil prices could also be the latest upbeat EIA data, which showed a surprise draw in US crude oil supplies. On the data front, the US Energy Information Administration reported a draw of 994,000 million barrels, against the forecast of a 446,000-barrel build. During the previous week, a 9.190-million-barrel draw was recorded. It should be noted that the WTI Crude Oil stockpiles in the US are now at their lowest levels since March last year.

On the USD front, the US dollar is trading close to its highest level in more than a month on the day, as the concerns about the US economic outlook declined after the release of upbeat US data. It is interesting to note that last month, economic activity in the US service sector grew at its strongest pace since February 2019, with the ISM Services PMI rising to 58.7, from 57.7 in January. These figures surpassed the market expectations of 56.8. Meanwhile, the publication showed that the New Orders Index grew to 61.8 from 58.6, and the Employment Index increased to 55.2 from 48.7, which was the highest figure since February 2020. Apart from this, the gains in the US dollar could also be associated with the progress on the coronavirus vaccination front and the latest moves by US President Joe Biden to pass his fiscal stimulus package. However, the upticks in the US dollar turned out to be one of the key factors that kept a lid on any additional gains in the 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, stood at 91.066, which is not far from the highest level since early December.

On the bearish side, the re-emergence of COVID-19 cases in many countries has urged authorities to impose further restrictive measures, such as lockdowns, which in turn has raised doubts over the recovery in fuel demand, which is seen as a key factor that is keeping a lid on any additional gains in the crude oil prices.

Moving ahead, market traders will keep their eyes on the release of non-farm payrolls data and Friday’s US employment data for January, which is expected to show that 50,000 jobs were added in January. Furthermore, the updates surrounding the coronavirus vaccines and the US financial aid package could provide fresh direction for the commodity. Good luck!