Search ForexCrunch
  • WTI is having a strong finish to the week, having rallied as high as $57.00 on Friday.
  • Higher stock prices, US bond yields, and a lower US dollar are all providing tailwinds to the crude oil complex.

Front-month futures for the American benchmark for sweet light crude, West Texas Intermediary (or WTI), has continued to grind higher on the final trading day of the week. WTI even managed to surpass the $57.00 mark for the first time since last January a few times, although for now seems content to consolidate just below this level, having rallied from Asia Pacific levels around the $56.50 mark.

Driving the day

US markets are seeing another risk-on day and look to end what has already been a very strong week with a flourish; the S&P 500 is up a further 0.3% and continues to advance further into uncharted record-high territory. US bond yields continue to advance, with the 10-year now back above 1.15% and eyeing a test of recent highs of above the 1.18% mark and the curve continues to steepen. Meanwhile, the US dollar has been on the back foot since a broadly underwhelming US labour market report for January.

In terms of correlations at least, this is a very positive backdrop for crude oil markets, hence the gains being seen across crude oil markets on the final trading day of the week. Downbeat US data is being shrugged off, largely because, if anything, it will only serve to reinforce in the minds of US policymakers that economic conditions need to remain ultra-accommodative. In other words, sluggish data puts to pressure on fiscal policymakers to enact further spending measures (US President Joe Biden has already decried the poor data, saying that at this rate, full employment is 10 years away) and on monetary policymakers to stay dovish.

Regarding fiscal policy; the news flow coming out of the US Congress this week has been positive. The Senate voted in favour of beginning budget reconciliation proceedings and the House is set to vote on this on Friday. This will clear the way for the Democrats to be able to push through significant sums of stimulus, even without the consent of the Republicans, although markets at this point expect that the Democrats will fail to get all of Biden’s $1.9T package enacted. The key thing here is that more stimulus will give a powerful boost to US economic activity, thus significantly boosting the demand for fuel.

Other factors keeping crude oil market participants feeling bullish include; ongoing vaccine optimism as major economies (led by the UK and USA) push for some level of herd immunity and 2) ongoing output cuts and flexibility from the OPEC+ cartel and its members, which most expect will result in falling global oil inventories in 2021. The fact that EU countries might on the cusp of tightening/extending lockdown restrictions may have weighed on European equities on Friday but it did not appear to dent crude oil optimism much. 

WTI key levels