Oil Rallies As Traders Shrug Off Demand Concerns

Oil Video 08.01.21.

Oil Continues Its Upside Move As Traders Bet On Riskier Assets

WTI oil is currently trying to get to the test of the $52 level as traders remain encouraged by Saudi Arabia’s decision to cut its oil production by 1 million barrels per day in February and March.

It looks like oil is also supported by the global rush to buy riskier assets. The risk-on mode is highlighted by the sell-off in the precious metals segment, which is also hurt by rising U.S. government bond yields. If traders increase their purchases of oil in a bet on a robust rebound of the world economy, oil may soon  get to the test of the $55 level.

However, if traders’ focus shifts from the longer-term view to near-term problems, oil may suffer a sell-off as demand in Europe is set to remain weak in the first quarter of this year. In fact, it looks like the outlook for the European oil demand gets worse day by day due to problems on the coronavirus front.

London Declares “Major Incident” As Coronavirus Is “Out Of Control”

Yesterday, I noted that potential problems with coronavirus in China, which is currently trying to contain an outbreak in the Hebei province, may ultimately have an impact on the oil market. In the near-term, the market will likely ignore the recent developments in China since the situation is still under control.

Meanwhile, it may be harder to ignore the developments in Europe as the situation with the virus is heading in the wrong direction. London Mayor Sadiq Khan was forced to decline a “major incident” in the city due to the unprecedented pressure on the healthcare system.

In France, Strasbourg announced a curfew from 6 p.m, and French Prime Minister Jean Castex stated that more regions could be added to the 6 p.m. curfew list. Most likely, European countries will have to introduce additional virus containment measures as the number of new virus cases rises after Christmas and New Year holidays.

At this point, it looks like European countries will have to keep significant virus-containment measures in some form for the most part of the first quarter which may have a significant impact on oil demand. It is not clear when traders will pay attention to the latest developments in Europe but the risk for the oil demand is material.

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