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Development of the Oil market from pandemic’s lows

"A century ago, petroleum - what we call oil - was just an obscure commodity; today it is almost as vital to human existence as water" - James Buchan

Development of the Oil market from pandemic’s lows

Recently, crude oil prices enjoyed 4 consecutive week rally after upbeat vaccine news. The rally also supported by the Biden’s victory in the hopes that he will soon announce a large fiscal stimulus package that could support demand for oil.

Development of the Oil market

(Jan 20 – March 20) During the first quarter of 2020 crude oil prices plummeted after the COVID-19 has weakened the energy demand worldwide and the demand took the biggest hit seen in years at a time where production was reaching new highs. In March 2020, the oil price reached the lowest level since 2002 as travel restrictions and lockdowns in major economies wipe out millions of barrels of oil per day of global oil demand.

(April 20 – June 20) At the beginning of the second quarter, the oil prices started to pick up after OPEC+ group has agreed to a historic production cut in early April. The production cut started on 1 May 2020, for an initial period of two months that concludes on 30 June 2020. The OPEC received additional support from Iraq and Kazakhstan both the countries agreed to increase their compliance with the deeper supply cuts agreed on by OPEC+ nations.

(July 20 – Sep 20) During the third quarter, the oil prices traded steady on hopes for a recovery in vehicle traffic and fuel demand as some European and Asian countries, along with several US states, began to ease coronavirus lockdown measures.

(Oct 20 -present) Moving into the end of the year the oil prices rebounded from the previous month lows and surged to 8 months with the hopes that global oil demand would gradually increase in coming months once the new vaccine starts to be distributed around the world. Meanwhile, in October month the crude oil prices faced some downside pressure after certain countries are forced to reinstate lockdown measures and negative World Energy Outlook 2020 report.

Here are the major hurdles oil market faced so far this year

  • Coronavirus cases and its effects on global economic recovery.

  • An oil price war between Saudi Arabia and Russia.

  • Oversupply concerns due to the instability in US crude inventories.

  • Renewed lockdown restrictions in the US and Europe.

Will Joe Biden’s Presidency might be another challenge for the oil market?

Some of the market participants still believe that President-elect Biden will increase regulation of the oil sector and he may stop issuing drilling permits for federal lands and waters, which would shrink US oil production by up to 2 million b/d by 2025. On the positive side, hope for a large-scale coronavirus relief package and trade relations with China could be other reasons where a Biden presidency could be positive for short-term demand.

WTI Crude technical outlook

WTI

Technically the overall momentum remained bullish for the US crude oil prices throughout this month. In the short term if the bullish momentum continues the next upside levels to watch $46 and $48. On the flip side, the first immediate support can be found at $43.80 and then $43. In the long term, watch for weekly closing above $50 or below $40 area, that will give a larger confirmation of direction in the long term.

Conclusion

shutterstock_1673548843 (1)

Considering the recent bullish move the oil investors will closely monitor Joe Biden upcoming actions as he aims to tackle climate change and support renewable energy development. In the coming weeks, we expect a weaker US dollar, positive vaccine optimism and improving demand and supply fundamentals continue to support the oil market. This week the investors also looking forward to the fresh updates from the OPEC meeting. According to Reuters, the two days OPEC meeting delayed to December 3rd. The meeting was originally due to have taken place on December 1st.

              

 

 

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