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  • WTI is a little softer on Thursday, weighed by pandemic concerns and bearish weekly inventory numbers.
  • Prices are currently consolidating either side of the $53.00 level.

Front-month WTI futures trade a little lower on Thursday midway through US trade, with prices consolidating either side of the $53.00 level and been unable to return back to Wednesday’s $53.80 highs. At present, WTI is about 0.5% or 30 cents lower, having been weighed during Asia Pacific trade following a surprise build of 2.562M barrels in Wednesday’s API private inventory report (expectations were for a 300K barrel draw in inventories). The implication is that demand for crude oil was a little softer than expected last week.

Crude oil fundamentals to consider

Rapid vaccine rollouts in major developed economies remain supportive to the crude oil complex, with the UK on Thursday delivering a daily record of 363.5K vaccine doses. The assumption is that by summer, major economies will have developed sufficient herd immunity to “reopen” their economies, which ought to give crude oil demand (as well as economic activity in general) a significant boost.

Anything that threatens that assumption is then, of course, a threat to crude oil markets; traders would do well to continue monitoring stories about potential vaccine ineffectiveness versus new Covid-19 variants. Sky News reported on Wednesday that vaccines might be less effective against the South African variant, though Oxford University vaccine designers are already reportedly preparing to rapidly produce new versions of their vaccine to combat emerging Covid-19 variants from the UK, South Africa and Brazil, reported the Telegraph.

Moreover, preliminary data from Israeli scientists suggests that the first dose of the Pfizer vaccine alone only protects 33% of people from Covid-19 infection two-three weeks after vaccination. This latest news will worry UK scientists, who endorsed the UK government’s strategy of delaying the second dose of the vaccine well beyond vaccine maker Pfizer’s 21-day recommendation. A failure to see a substantial drop in the death rate in the UK over the coming months could raise alarm that vaccines are not working as well as hoped.

Traders also continue to mull the impact US President Joe Biden’s administration will have on the US energy industry and what that means for crude oil prices; the President has already signed an executive order rescinding the license for the Keystone XL pipeline to be built across the US border, seemingly in acknowledgment of the various environmental/climate change concerns shared by many in the Democrat party. Most analysts see the Biden administration’s energy policy as most likely bullish for crude oil prices as it is expected to weigh on North American production and hand power back to OPEC+ producers, empowering them to exert further upward pressure on prices. Speaking of; OPEC+ compliance to the cartel’s agreed output cuts came in at 99% in December, two sources told Reuters.

Looking ahead, crude oil market focus returns to inventory data on Friday, which is being released two days late on account of Monday’s MLK Day holidays in the US and then inauguration day on Wednesday. Aside from that, expect crude oil markets to continue to trade as a function of the latest pandemic news and the waxing and waning of US fiscal stimulus hopes.

WTI key levels