Crude Oil Slips Below $61 – Stronger Dollar & E.U. COVID-19 Worries in Play!
Arslan Butt • 3 min read
During Monday’s Asian trading session, WTI crude oil failed to stop its overnight declining streak and remains pessimistic around below the $61.00 level amid concerns over surging coronavirus cases globally and the renewed lockdowns in France and India, which are denting the hopes of faster global economic recovery and putting pressure on the oil prices. Across the Atlantic, the reason for the losses in crude oil prices could also be tied to the broadly firmer U.S. dollar, which was being supported by the massive surge in the country’s Nonfarm Payrolls.
As we know, a bullish U.S. dollar is always seen as the key factor that kept the crude oil prices under pressure as the price of oil is inversely related to the U.S. dollar. Alternatively, the upbeat market mood, backed by the upbeat U.S. employment report, faster vaccinations, and hopes of faster economic recovery, helps the higher-yielding crude oil prices to limit its deeper losses. Apart from this, the losses were also capped by reports suggesting that Saudi Arabia has increased its oil prices for shipments to customers in its main market of Asia, which directly indicates the kingdom’s belief in the region’s economic recovery. Meanwhile, the OPEC+ agreed to slowly ease some of its production cuts between May and July, which continue to offer some additional support to the oil buyers as the investors viewed the OPEC+ decision as a confirmation of demand-led recovery. At the moment, crude oil is trading at $60.85 and consolidating in the range between 60.81 and 61.41.
On the gloomier side, the third wave of coronavirus diseases is still out of control, as a result of which France and India imposed renewed lockdown restrictions, causing a fading in hopes of faster global economic recovery. These concerns also weigh on the crude oil demand recovery, which negatively affect crude oil prices. The bearish oil prices could also be associated with the doubts over the China-US trade deals, which in turn weighs on the risk sentiment and contributes to losses in the higher-yielding crude oil. Moreover, the sentiment is also weighed down by a broadly stronger U.S. dollar due to the massive surge in the country’s Nonfarm Payrolls.At the USD front, the broad-based U.S. dollar managed to extend its previous day’s positive moves and remained well bids on the day amid last week’s strong U.S. employment report, which cites a solid economic rebound from the coronavirus shock. It is worth recalling that the dollar marked its best quarter against major currencies in almost three years in January-March, mainly due to an improving U.S. economy and rising Treasury yields. Moving on, the dollar gains could be long-lived as traders look for ways to bet on a global economic recovery from the worst of the coronavirus pandemic. Conversely, the upticks in the U.S. dollar were capped by the upbeat market mood, which decreases safe-haven demand in the market. However, the upticks in the U.S. dollar were seen as one of the key factors that kept the lid on any additional gains in the crude oil prices.
Despite multiple negative concerns surrounding the market, the market trading sentiment is representing positive performance on the day as the positive environment around the Asia-Pacific stocks and upticks in the S&P 500 Futures tend to highlight the risk-on mood, which was being supportive by the upbeat U.S. employment report, faster vaccinations and hopes for U.S. President Joe Biden to push for $2.25 trillion. President Joe Biden is ready to use his special powers to get the Senate’s approval for the key relief package. Furthermore, the S&P 500 Futures’ upticks were further bolstered after Japan showed willingness for more stimulus. Meanwhile, the lack of fresh COVID-19 transmission cases in Australia also lends some support to the market sentiment. However, these positive headlines help the crude oil prices limit their deeper losses, at least for the time being.
Alternatively, the losses in crude oil prices were capped by the reports suggesting that Saudi Arabia has increased its oil prices for shipments to customers in its main market of Asia, which directly indicates the kingdom’s belief in the region’s economic recovery. Meanwhile, the oil output policy decision from OPEC and its allies (OPEC+) also supports the oil prices to limit its deeper losses. It is worth mentioning that the Organization of the Petroleum Exporting Countries, Russia, and their allies, a group known as OPEC+, showed agreeability to ease outputs curbs by 350,000 barrels per day (BPD) in May, another 350,000 BPD in June, and further 400,000 BPD or so in July.
Looking forward, the COVID-19 updates and the U.S. weekly oil supply reports will be key to watch for oil’s fresh direction. In the meantime, light trades and insignificant volatility amid Easter Monday could keep traders inactive on the day. Good luck!