Crude Oil Prices Hit 11-Month Peak on Hopes of Reflation, Falling Inventories

CRUDE OIL PRICE ANALYSIS:

  • The prices of crude oil advance to $53.9, which is the highest levels since February 2020
  • The US Dollar index came off from the 3-week high, underpins prices of commodities
  • Hopes of Reflation, Saudi oil production cuts, and dropping stockpiles are amongst the main drivers.
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The prices of crude oil rose over 3% to $53.9, hitting the highest levels since February 2020. The large draw in API crude stockpiles and the weak US Dollar gave the prices of oil a new boost along with hopes of reflation. The crude oil data pointed to the 5.82 million BPD drop in stockpiles from the week ending 8th January, as compared to the baseline forecast of the 1.66 million BPD drop.

Most recently the prices of crude oil seem to ride favorable tailwinds since Saudi Arabia announced the cut in production of about 1 million barrels in March and February amidst the dissent among the OPEC members. From this time, the WTI prices rose by over 13% with hopes that the willingness of the Saudi and ability to cut production might effectively impact the supply as well as shelter prices during the covid-19 crisis as New Zealand Dollar Blow On The Climbing US Yields, Rules Threats.

The prices of crude oil were also buoyed by reflation hopes and stimulus after the democratic regained control of the senate, which raised the possibility of more spending that aimed to energize output and demand. It’s likely that Joe Biden will unveil a new stimulus plan after being sworn in, which is closely being watched by currency and commodity traders for ideas on inflation outlooks and future spending.

WTI Crude Oil Price Chart

Crude-Oil-Prices-Hit-11-Month-High-on-Reflation-Hopes-Falling-Stockpiles_body_Picture_7

The short-term energy demand forecast, however, is largely overshadowed by the tight border lockdowns and restrictions across the world, as more states and cities continue facing a new covid-19 wave with new strains that are more transmissible as compared to the original one. Also, Malaysia has already declared a state of emergency for the next 14 days in all key areas. Essentially, china imposed restrictions in some of Hebei and asked people from traveling between the provinces to stop the spread of covid-19. Also, South Korea December jobless rate hit a 10-year peak because of the covid-19 crisis impact.

Based on the EIA weekly crude oil report, the US stockpiles are currently at about 485.5 million BPD, which is 9% over the 5-year average. Also, the US Crude Oil refinery input rose by about 89,000 BPD to about 14.4 BPD last week, as the refineries worked at 80.5% operable capacity, which is higher than last year.

Oil investors are expecting a 3.0 million BPD drop in stockpiles for the week ended 8th January 2021; the real data will be released on Wednesday. Last week, the WTI crude oil stockpiles dropped by 8.01 million BPD, which exceeded the market estimates. The prices of crude oil historically showed a negative correlation with stockpiles.

Source: Bloomberg

 

 

 

 

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