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James Hyerczyk
WTI and Brent Crude Oil

U.S. West Texas Intermediate crude oil futures continued to move higher on Friday with last February’s high at $53.60 well within reach. Meanwhile, international-benchmark Brent crude oil futures traders are targeting their February 2020 top at $57.43.

Investors continue to look beyond rising coronavirus cases, instead choosing to focus on the prospect of lower supply after Saudi Arabia pledged to cut output in February and March. Also underpinning the crude oil market is this week’s reported drawdown in U.S. crude stockpiles although one could argue that a spike in gasoline supply may have been offsetting news.

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At 14:10 GMT, February WTI crude oil futures are trading $51.70, up $0.87 or +1.71% and March Brent crude oil is at $55.29, up $0.91 or +1.67%.

“The surprise Saudi cut is keeping bulls at the helm of the energy complex,” said Stephen Brennock of oil broker PVM. “It will take a brave man to bet against the current bullish run of play.”

Coronavirus Cases Rising Globally

The pandemic claimed its highest U.S. death toll yet, killing more than 4,000 people in a single day, while China reported the biggest rise in daily cases in more than five months and Japan may extend a state of emergency beyond the greater Tokyo region, according to Reuters.

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Daily Forecast

The move by Saudi Arabia could keep oil prices propped up until February, but at some point prices will become overextended as the focus shifts toward slower demand for gasoline and other fuels in the United States and other parts of the world due to wider restrictions to contain the spreading COVID-19 pandemic.

Severe mobility restrictions around the world to contain a surge in COVID-19 cases still weighed on fuel sales, weakening the prospect of energy demand recovery in the first half of 2021.

The demand numbers are bearish, which tells me that speculators are bolstering crude oil prices. They have placed a big bet on the vaccines stemming the surge in the virus and putting the global economy back on a path toward a speeding recovery.

Nonetheless, oil prices are ripe for a correction in coming months, if speculator-driven rallies are not backed by stronger fuel demand soon.

This is not going to crash prices but return them to more reasonable levels. OPEC+ can always cut production further to offset lower demand. Because of this investors will be looking to buy on any weakness because they believe that OPEC+ is their safety net and has their backs.

For a look at all of today’s economic events, check out our economic calendar.

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