Oil Pulls Back Amid Rising Coronavirus Cases In ChinaOil faced strong resistance near $52.70 and is trying to settle below the $52 level.
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At this point, the pullback is not significant as traders believe that Saudi Arabia’s major production cut should be able to offset the potential problems with Asian oil demand in the first quarter of 2021.
In addition, it looks like traders are mostly confident that China will be able to contain the new coronavirus outbreak in the Hebei province. While China reacted slowly to the emerging threat back at the beginning of 2020, it changed its tactics and had shown that it was ready to implement draconian measures at the first sign of a new virus cluster.
If the market continues to believe that the situation in China is under control, the current pullback will not have serious chances to turn into a sell-off. However, if China fails to contain the outbreak within the Hebei province and the virus spreads to other parts of the country, oil will likely decline below the $50 level.
U.S. Oil Producers Add More Rigs
The recent Baker Hughes Rig Count report indicated that the number of U.S. rigs drilling for oil increased by 8 to 275. While the number of drilling rigs continues to increase, U.S. domestic oil production is not moving higher.
According to the EIA Weekly Petroleum Status Report, U.S. production remained unchanged at 11 million barrels per day (bpd). Meanwhile, oil’s recent rally and Saudi Arabia’s production cut should provide additional incentives to increase production.
Oil traders will closely monitor U.S. production data as a robust increase of production may put pressure on oil prices. However, there are no signs of such production increase in the recent EIA reports despite the rising rig count. If the U.S. production remains close to the 11 million bpd level which appears to be a comfortable level for the market, oil may get additional support.
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