Crude Oil Placing Highest Level in a Year – Tensions in the Middle East!

During Monday’s Asian trading session, the WTI Crude Oil prices managed to extend last week’s winning streak, rising to their highest level in more than a year, well above the mid-$ 60.00 level, mainly due to the fears of heightened tensions in the Middle East. These fears were triggered after the Saudi-led coalition fighting in Yemen said it had intercepted an explosive-laden drone fired by the Iran-aligned Houthi group.

Meanwhile, the bullish bias surrounding the crude oil prices could also be attributed to the hopes of more US stimulus and an easing of coronavirus lockdowns, which helped the market trading mood to stay bid and contributed to the gains in crude oil. The crude oil prices got some additional support from the weaker US dollar, as the oil price is inversely related to the price of the US dollar. Another factor that could also be supporting the oil sentiment could be the production cuts recently agreed to by other members of the Organization of the Petroleum Exporting Countries (OPEC) and their allies.

On the flipside, the fresh lockdowns in New Zealand and Australia and the conveyance of fears of re-infection expressed by the World Health Organization (WHO), could be seen as a major bearish factor that has kept a lid on any additional gains in the crude oil prices. At the time of writing, WTI Crude Oil was trading at 60.88, and consolidating in a range between 60.01 and 60.95. Looking forward, the traders appear careful to place any strong positions amid holidays in China and the US, and the absence of any major data/events.

The market trading sentiment maintained its positive performance last week and remains positive on the day, amid recent optimism concerning the coronavirus (COVID-19) aid package and vaccines. As per the latest report, US President Joe Biden is set to inject his $ 1.9 trillion stimulus, even though the Republicans keep disturbing the road to the much-awaited relief. The recently downbeat US employment data, coupled with fears of further weakness in the job market, increased the demand for the much-awaited aid package. Apart from this, the successful vaccination of over 15 million Britons and renewed calls for easing the virus-led lockdowns, are also playing a major role in supporting the market trading sentiment. In addition to this, the US and China have also seen receding numbers of virus cases, after the jump in the administration of vaccines.

Apart from this, the positive market performance could also be attributed to the upbeat Japanese GDP, which raised hopes of economic recovery. On the data front, the QoQ figures exceeded the 2.3% forecast, coming in at 3.0%. The data lagged behind the market consensus forecast of 1.0% on the YoY basis, coming in at just 0.2%.

As a result of a brighter market mood, the broad-based US dollar failed to stop its losing streak of the previous-session, remaining sour on the day, as the demand for the safe-haven assets is still low amid hopes of a faster US economic recovery from the COVID-19 pandemic and progress toward agreeing on the US fiscal stimulus package. However, the losses in the US dollar helped crude oil to stay bid, as the oil price is inversely related to the price of the US dollar. The US Dollar Index, that tracks the greenback against a bucket of other currencies, was at 90.427 – close to last week’s low of 90.249, a level that has not seen since Jan. 27.

The crude oil prices got an additional lift across the ocean, after the major crude oil producers like Saudi Arabia, promised to cut crude output as per their commitments. It is worth recalling that the crude oil prices have recovered over recent weeks, as supplies tighten, mainly due to production cuts by the Organization of the Petroleum Exporting Countries (OPEC) and allied producers in the group OPEC+.

Moreover, the upticks in the crude oil prices were further bolstered after the Saudi-led coalition fighting in Yemen claimed that it had intercepted a drone laden with explosives, fired by the Iran-aligned Houthi group, which eventually raised fears of fresh Middle East tensions, which contributed to the crude oil gains.

Meanwhile, the renewed lockdown measures in New Zealand and Australia, coupled with the downbeat statement by the WHO, citing fears of re-infection with the virus strains, could be seen as a major bearish factor that has kept a lid on any additional gains in the crude oil prices. The geopolitical tensions between China and the Western world could also be capping any further upticks in oil.

In the absence of any major data/events on the day, market traders will keep their eyes on the development of the coronavirus saga. The holidays in China and the US and the absence of any major data/events, will restrict any immediate moves in the commodity. Good luck!