- WTI has surged above the $59.00 level in recent trade amid USD weakness and a positive fundamental backdrop.
- Crude oil markets have thus now more than made up for losses incurred on Thursday amid pessimistic OPEC and IEA reports.
Front-month futures contracts for the American benchmark for sweet light crude oil, West Texas Intermediary (or WTI), have been on the front foot for the past few hours this Friday. Having dropped on Thursday, as price action was weighed by somewhat more pessimistic than expected demand forecasts in the monthly OPEC oil market and International Energy Agency reports, dip buyers have more than made up for these losses on Friday, buoyed by ongoing strength in the fundamental backdrop and weakness in the US dollar. In recent trade, WTI just managed to surge above the $59.00 level for the first time in 13-months, a powerful from early European session lows of under the $57.50 mark.
Driving the day
No specific piece of fundamental news is behind Friday’s upside, but the general mood of markets remains very upbeat given continued good (or, at least, risk asset positive) news on the prospect for further US fiscal stimulus (Senate Democrats are likely to bypass committees and bring US President Joe Biden’s $1.9T stimulus bill proposal directly to the Senate floor, fast-tracking the process), continued central bank support (Fed Chair Jerome Powell was uber dovish earlier in the week) and on the pandemic. On the latter, data out of Israel this morning showed that in a study of over half a million vaccinated people, none contracted Covid-19, an amazing statistic that will have really boosted hopes that the world can decisively defeat the Covid-19 pandemic.
Oil markets also remain underpinned by strong ongoing OPEC+ cooperation and compliance, as well as Saudi Arabia’s 1M barrels per day in voluntary cuts, both of which has contributed to a tightening of global markets despite near-term demand having been dealt a blow due to winter lockdowns in major economies.
As rosy as the picture seemingly looks on both the demand and supply fronts, it is worth noting a few risks that could bite; the WHO was just sounding the alarm about people being reinfected by new variants of Covid-19 after having been infected by the original variant. Meanwhile, Melbourne, Australia being thrust back into a snap lockdown suddenly on Friday serves as a reminder that the bar is not high at all for major economies that have controlled the pandemic comparatively better than Europe and the US (China, Australia etc.) to aggressively reimplement lockdown.
These countries for the most part lag the UK and US in terms of their vaccine rollouts, to the risk of sudden lockdowns will persist for a while and could pose further downside risk to demand growth forecasts for 2021, which would weigh on crude oil markets.
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