- WTI has dropped all the way below $62.00 from Asia Pacific and early European session levels in the $64.00s.
- Demand concerns are being cited as weighing on the complex, but technical selling also appears to be in play.
It’s been an ugly session for crude oil markets, with selling in the complex accelerating upon the arrival of US market participants from 11:00GMT. Front-month futures contracts for the American benchmark for sweet light crude oil, West Texas Intermediary or WTI, have dropped all the way below $62.00 from Asia Pacific and early European session levels in the $64.00s. On the day, that means WTI trades with losses of over 4.0% or about $2.70. WTI is now on a five-day losing streak, its longest since February 2020.
Whilst demand concerns are being cited as weighing on the complex by market commentators, technical selling also appears to be in play; the $63.00-$64.00 zone was a key area of support (this and last week’s lows, as well as the late February lows and WTI’s 21-day moving average). Once WTI had cleared $63.00 to the downside, technical selling accelerated amid a lack of any further key areas of support. Longer-term bears might now await a retest of the prior support and now resistance zone in the $63.00-$64.00 area before adding to shorts.
Fundamental developments
Market commentators have been pointing to some negative pandemic-related developments in explanation of Thursday’s price action; the UK press was reporting on Wednesday that the rate at which the country is to receive vaccines will slow significantly at the end of the month as a result of international supply chain issues. Meanwhile, though the EU’s European Medicines Agency has just come out saying that the benefits of taking the AstraZeneca vaccine still significantly outweigh the risks (which means major European nations are now likely to resume their rollouts of the vaccine), the damage to confidence in the vaccine on the continent may be done, damaging the bloc’s vaccine rollout attempts.
Elsewhere, analysts are still discussing Wednesday’s monthly energy market outlook report from the Paris-based International Energy Agency; the agency said that it does not expect oil prices to enter a “supercycle”; according to Louise Dickson, an oil markets analyst at Rystad Energy, “the oil price ‘super’ cycle rhetoric is finally getting a bit of a reality check” and this, combined with the above mentioned negative vaccine news, as well as Wednesday’s build in US crude oil inventories is weighing on crude prices.
Other oil-market analysts suggest further crude oil inventory builds are likely in the coming weeks as a result of the WTI futures curve having gone back into Contango; Bob Yawger, director of energy futures at Mizuho in New York, explains that “contango is bearish because it encourages (firms to) store crude oil and sell it further down the curve at a profit”.
However, the long-term picture for crude oil markets remains positive; vaccine rollouts, though bumpy, continue to bring the end of the pandemic closer. Major economies are likely to be able to ease or even entirely eliminate economic restrictions over the coming Northern Hemisphere summer and a bumper driving and hopefully also flying season awaits. Meanwhile, OPEC+ members remain flexible, cooperative and seemingly eager to keep crude oil prices supported. This ought to keep crude prices supported going forward.
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