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James Hyerczyk
WTI and Brent Crude Oil

U.S. West Texas Intermediate and international-benchmark crude oil futures are trading lower on Monday in reaction to a stronger U.S. Dollar, which is helping to dampen demand for the dollar-denominated asset. Renewed concerns about global fuel demand is also encouraging profit-taking after a spectacular five-day surge.

At 14:24 GMT, March WTI crude oil futures are trading $51.64, down $0.62 or -1.19% and March Brent crude oil is at $55.16, down $0.83 or -1.48%.

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Jump in Coronavirus Cases Renews Concerns about Demand

“The renewed concerns about demand due to very high numbers of new corona cases and further mobility restrictions, plus the stronger U.S. Dollar, are generating selling pressure,” Commerzbank analyst Eugen Weinberg said.

Worldwide coronavirus cases surpassed 90 million, according to a Reuters tally.

Despite strict national lockdowns, Britain is facing the worst weeks of the pandemic, and in Germany cases are still rising.

Mainland China saw its biggest daily increase in virus infections in more than five months, authorities said, as new infections rose in Hebei, which surrounds the capital, Beijing.

Shijiazhuang, the provincial capital and epicenter of the new outbreak, is in lockdown, with people and vehicles barred from leaving, as authorities seek to rein in the spread.

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Strong Dollar Pressuring Demand for Dollar-Denominated Crude Oil

A stronger dollar, supported by hopes for more stimulus to boost the world’s largest economy also weighed on oil prices.

One of the catalysts behind the move is President-elect Joe Biden’s promise of “trillions” in extra pandemic-relief spending now that the Democrats will be in control both houses of Congress when he takes office on January 20.

Ordinarily, the extra spending plans would force investors to worry about rising inflation and its detrimental effect on the U.S. Dollar in a weak economy, but the currency has been supported in recent weeks thanks to rising U.S. Treasury yields.

Daily Forecast

Prices are likely to be under pressure early this week with investors using the stronger dollar as a good excuse to book profits. The coronavirus surge is finally becoming a concern again because this time China is being mentioned as a hotspot. For week’s cases have surged in the United States and Europe, but traders have shrugged off that news because of the rollout of the vaccines.

Conditions will shift quickly and the market could go through a steep correction if China doesn’t gain control of the new outbreak. Chinese economic growth has contributed the most to the outgoing global economic recovery in my opinion, so a bad outbreak could have a negative influence on the U.S. and Europe.

We’re only looking for a correction at this time, not a crash because Saudi Arabia’s pledge for a voluntary oil output cut of 1 million barrels per day (bpd) in February and March in last week’s OPEC+ agreement should provide a safety net for speculators.

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

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