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  • WTI has seen two-way price action over the last few hours, swinging between sub-$59.50 and close to $62.00 levels.
  • The Ever Given is no longer blocking the Suez Canal, but the crude oil market reaction has been limited.
  • Oil traders are looking ahead to this week’s OPEC+ meeting and further pandemic developments in the US and EU.

Front-month futures contracts for West Texas Intermediary (WTI), the American benchmark for sweet light crude oil, have seen two-way price action over the last few hours, swinging between sub-$59.50 and close to $62.00 levels. At present, WTI trades close to $61.00 and is flat on the day, with WTI still stick within last week’s $57.50-$62.00 ranges. With WTI having seemingly found decent support ahead of its 50-day moving average in the low-$59.00s, short-term crude oil market bulls might now be looking for a move back towards the 21-day moving average at just above $62.50, though that would require a break back to the north of last week’s range, the top of which sits at $62.00.  

Driving the day

The news that the Suez Canal is finally unblocked, with the Ever Given having resumed its journey after being grounded for over a week, does not seem to have had a lasting impact on crude oil markets. The main event of the week as far as crude oil markets are concerned will be the OPEC+ meeting; recent higher than usual levels of crude oil market volatility might well continue heading into the meeting as various OPEC+ sources leak the varied viewpoints of cartel members going into discussions. Most agree that another hike in output at this point is unlikely given 1) demand concerns in Europe and elsewhere as a result of the return to lockdown and 2) the recent sharp drop in prices from monthly highs (WTI currently trades more than 13% below its March high of just under $68.00) – OPEC sources said last Wednesday that a rollover of current production levels is the most likely outcome.

But aside from OPEC+, demand-side factors will also be in focus. The news out of Europe remains downbeat, with most EU countries having toughened restrictions substantially already as the bloc scrambles to slow the third wave of Covid-19 cases, but the trajectory of the pandemic on the continent continues to point towards tougher restrictions ahead. German Chancellor Angela Merkel is reportedly prepared to force lenient states to toughen restrictions using federal law if needed.

Meanwhile, while the news in the UK is good (cases, deaths and hospitalisations still very low and the economy on track for re-opening), the news in the US is getting worse. Covid-19 cases are starting to steadily rise, driven by increasing dominance of the B.1.1.7 Covid-19 strain, which was first detected in Kent, UK and is now known to be up to 70% more transmissible than the original Covid-19 virus and up to 30% deadlier. The US Centre for Disease Control (CDC) is worried; the CDC Director Rochelle Walensky said that some states are opening up at a rate that CDC would not recommend, and she will be speaking to state governors on Tuesday. The hope is that a rise in cases will not result in a rise in deaths, with the most vulnerable adults in the US having now been vaccinated. But deaths have risen a little and concerns about hospitals becoming overwhelmed again could well trigger the reimposition of restrictions. As has been the case in Europe, this would be terrible for short-term crude oil demand.