- WTI, which nearly hit the $68.00 level earlier in the session, is now under the $65.00 level.
- Most analysts expect WTI to remain supported going forward amid a bullish demand and supply outlook.
After surging nearly as high as the $68.00 level during Asia Pacific trade amid news that Saudi Arabian oil infrastructure had been targeted by Yemeni based Houthi militia forces, front-month futures contracts for the American benchmark for sweet light crude, West Texas Intermediary (or WTI), have reversed sharply and are now trading under the $65.00 level, down about $1.40 or just over 2.0% on the day. Support in the form of the 25 February high resides just under $64.00 and it seems likely that with markets still for the most part very bullish on oil, dip buyers will continue to be attracted to any pullbacks seen in the complex.
Driving the day
Upside in wake of the Saudi attack news at the start of the Asia Pacific session did not last long primarily because news quickly broke that the attack had failed and no person or facilities had been damaged. But the frequency of these attacks has picked up in recent weeks, something which the White House was expressing concern about on Monday. Midway through US trade, news broke of another failed attempt to strike Saudi facilities. If the rate of attacks continues, more geopolitical risk premia will have to be built into crude prices, another reason to be bullish.
Why has WTI’s reversal from earlier highs has been so dramatic? No specific fundamental themes appear to be driving the move and following gains of 14% from last Wednesday’s lows under $60.00 to Monday’s Asia Pacific session highs close to $68.00, some profit-taking is likely overdue.
Broadly speaking, most analysts/institutions agree that oil is likely to remain well supported going forward; the demand outlook is very strong amid expectations for more US fiscal stimulus, vaccine rollouts and economic reopening (which are both accelerating heading into the Summer), while the supply outlook remains very much supportive following last week’s OPEC+ decision to only increase output by a small margin (Russia and Kazakhstan were granted a combined 150K output hike).
More specifically on the demand side of things; the US Centre for Disease Control announced an easing of restrictions for those who have been fully vaccinated, citing the very low probability of transmission. Meanwhile, concerns that the Brazilian P.1. variant of Covid-19 might be vaccine-resistant have further cooled off after news of preliminary data from China’s Sinovac that suggest it is effective against the variant.