Advertisement
Advertisement

Oil Price Fundamental Daily Forecast – China Demand Concerns Encouraging Bulls to Trim Long Positions

By:
James Hyerczyk
Published: Jan 15, 2021, 11:35 UTC

Bullish traders are hoping Biden's new stimulus injection stabilizes the economy and steadies fuel demand, but we'll have to wait weeks to see.

WTI and Brent Crude Oil

In this article:

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading lower on Friday as new lockdowns in Chinese cities due to coronavirus outbreaks raised concerns over future demand. The potentially bearish news is outweighing earlier in the week reports on strong import data from the world’s biggest crude importer and U.S. plans for a large stimulus package.

At 11:02 GMT, March WTI crude oil is trading $52.78, down $0.84 or -1.57% and March Brent crude oil is at $55.38, down $1.04 or -1.84%.

In another potentially bearish short-term signal, Brent is in a position to post its first weekly decline in three, while WTI is on track for a third straight weekly gain.

Focus Shifts to Chinese Demand

Crude imports into China were up 7.3% in 2020, with record arrivals in two out of four quarters as refineries increased runs and low prices prompted stockpiling, customs data showed on Thursday. That may be good news, but it’s also old news. Traders want to know “What have you done for me lately?”

The fresh news that could have an impact on future demand is China’s reporting of the highest number of daily COVID-19 cases in more than 10 months on Friday, capping a week that has resulted in more than 28 million people under lockdown and the country’s first death from the coronavirus in eight months.

“Oil market euphoria is unequivocally strong, but market indicators from Asia are mixed,” RBC Capital Markets said.

“China, the global engine of oil demand growth, is wrestling with fresh COVID outbreaks,” it said.

Biden Pledges New COVID Relief

U.S. President-elect Joe Biden on Thursday revealed details of a $1.9 trillion coronavirus rescue package. Biden’s proposal, called the American Rescue Plan, includes some familiar stimulus measures in the hope of sustaining families and companies till vaccines are widely distributed. Some of the proposed measures include stimulus checks as well as unemployment support.

Bullish traders are hoping this new stimulus injection stabilizes the economy and steadies fuel demand, but it may be weeks before the economy sees any of the cash stimulus he has promised.

Meanwhile, the weakening labor market remains a major concern for traders. On Thursday, the Labor Department’s weekly jobless report showed the number of Americans filing first-time claims for unemployment benefits increased more than expected last week, underscoring the impact of a resurgence in COVID-19 infections.

Daily Forecast

The market is still strong and likely to remain in that position due to Saudi Arabia’s decision to trim a million barrels per day from production in February and March. However, it may be a little overpriced and due for a short-term pullback because of the mixed demand picture coming out of Asia and especially China.

The world’s biggest importer of crude oil will become a greater concern for bulls if it begins to lose control of the COVID outbreaks, but at this time, the news is just bearish enough to encourage the professionals to lighten up on the long side, but not enough to encourage outright shorting. That being said, a decent break from current price levels will likely be welcomed by longer-term bulls.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

Did you find this article useful?

Advertisement