Oil Price Fundamental Weekly Forecast – Firming US Dollar, Global Demand Concerns Driving the Price Action

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures finished mixed last week as the rally ran out of steam amid new coronavirus-related demand concerns and worries over a slowing U.S. economy.

The news was just bearish enough to encourage investors to lighten up on the long side, which suggests a short-term correction may be in the making. Longer-term traders are not too worried since they expect OPEC+ production cuts and Saudi Arabia’s voluntary output reductions to provide amble support.

Last week, March WTI crude oil settled at $52.42, up $0.16 or +0.31% and March Brent crude oil finished at $55.10, down $0.89 or -1.62%.

To Recap the Week:

US Government Reports Another Bullish Draw

The market is also being underpinned by another reported drawdown in U.S. crude oil stockpiles, though gasoline and distillate inventories rose as refiners ramped up output to the highest level since August, the Energy information Administration said on Wednesday.

Crude inventories fell by 3.2 million barrels in the week to January 8 to 482.2 million barrels, compared with expectations in a Reuters poll for a 2.3 million-barrel drop. U.S. gasoline stocks rose by 4.4 million barrels in the week to 245.5 million barrels, compared with expectations for a 2.7 million-barrel rise. Distillate stockpiles rose by 4.8 million barrels in the week, versus expectations for a 2.7 million-barrel rise.

Refinery crude runs rose by 274,000 barrels per day in the last week, the EIA said. Refinery utilization rates rose by 1.3 percentage points, in the week, boosting overall refining use to 82% of capacity, highest since August.

China Crude Imports Jump in 2020

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.

IEA Says Oil Market Outlook Clouded by Vaccine Roll-Out Variables

Oil producers face an unprecedented challenge to balance supply and demand as factors including the pace and response to COVID-19 vaccines cloud the outlook, and official with the International Energy Agency (IEA) said on Wednesday.

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.

US Recovery Weakening

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.

U.S. retail sales fell for a third straight month in December amid job losses and renewed measures to slow the spread of COVID-19, the Commerce Department reported on Friday, further evidence the economy lost speed at the end of 2020.

Weekly Forecast

At the end of last week, crude oil prices were being controlled by the U.S. Dollar and worries over rising coronavirus cases in China. We expect to see much of the same this week as a drop in risk sentiment due to a weakening U.S. economy is expected to continue to drive investors into the safe-haven greenback. Since crude oil is a dollar-denominated asset, foreign demand is expected to come in lighter, pressuring prices.

We should learn a lot about the spread of COVID-19 cases in China over the near-term by its decision as to whether citizens will be allowed to travel to various cities to celebrate the Lunar New Year in February.