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Vladimir Zernov
WTI Crude Oil

Oil Video 17.12.20.


Oil Gains Ground On Stimulus Hopes And Weaker U.S. Dollar

Oil continues to move higher and is trying to settle above the $48 level. At this point, oil is impacted by a number of general fundamental developments rather than oil-specific catalysts.

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Yesterday, the U.S. Fed promised to support the economy as long as necessary. In addition, traders expect that U.S. lawmakers will soon negotiate a new round of stimulus which will boost the economy.

These two factors put significant pressure on the U.S. dollar, which is trading at yearly lows against a broad basket of currencies. In turn, weak dollar provides support for dollar-denominated commodities, including oil.

In addition, vaccine optimism serves as an important catalyst for the current rally. While we will not see meaningful improvements in the next few months, the market believes that the situation will improve materially by the time the next year’s driving season begins, which should allow oil demand to return closer to normal levels.

The full return to normal is impossible without a full rebound of demand for air travel which may not happen in 2021, but even a partial return to normal should provide sufficient support to the oil market.

Gasoline Demand Rebounds

EIA Weekly Petroleum Status Report, which was released on Wednesday, indicated that gasoline demand increased from 7.6 million barrels per day (bpd) to 7.98 million bpd. A year ago, gasoline demand stood at 9.41 million bpd.

Demand for gasoline is 1.43 million bpd lower than a year ago. Recent EIA reports show that the gap is not closing as gasoline demand stabilized at lower levels and basically repeats the seasonal fluctuations seen in previous years.

At this point, it is clear that gasoline demand will not move higher without material improvements on this virus front. However, traders continue to ignore near-term challenges as they focus on the longer-term picture and prepare for a material rebound of demand in 2021. That said, it remains to be seen whether oil will be able to settle above the $50 level without real improvements on the demand front.

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

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