Oil Market Outlook this Week – What to Expect?
WTI and Brent crude oil future prices ended unevenly last week. The reason was that the recent rise was running out of gas due to concerns about the coronavirus’ negative effect on demand and the slowdown of the US economy.
This news was bearish enough to encourage investors to lighten their long positions. Analysts think that we could come close to seeing a correction in the short term. By contrast, long-term traders are not overly concerned. They expect the voluntary production cuts announced by Saudi Arabia to provide more than enough support to the market.
Last week, WTI crude oil gained $0.16 or + 0.31% during the March delivery and settled at $52.42. March Brent crude oil dropped $0.89 or -1.62% and closed at $55.10.
The US government reports reserve decline
According to EIA, the market was supported by another drop in crude oil reserves in the United States. They fell by 3.2 million barrels during the week ended January 8, reaching 482.2 million barrels. On the other hand, US gasoline reserves increased 4.4 million barrels during the week to 245.5 million barrels. In the case of distillate reserves, there was an increase of 4.8 million barrels throughout the week, compared to projections of a 2.7 million barrels rise.
The EIA also said that crude processing at refineries increased by 274,000 barrels per day over the past week. The refinery utilization rate increased by 1.3%. Thus, pushing the refineries’ total utilization rate to 82% of its capacity. Consequently, reaching its highest level since August.
US recovery weakens
Thursday, the US Labor Department released a report showing that the number of Americans applying for unemployment aid the first time in the past week had risen more than expected. It highlighted the negative impact of the resurgence of COVID-19 cases.
Besides, the Commerce Department reported on Friday that retail sales fell for the third consecutive month in December, in a context of job losses and increased restrictions to stop the coronavirus spread. It represents more evidence that the economy was weakening at the end of 2020.
At the end of last week, the US dollar and concerns about the increase in coronavirus cases in China dominated crude oil prices. This week, analysts expect more of the same as the weakening of the US economy is forecast to continue. Thus, sending investors towards the safety offered by the US dollar. Since crude oil is denominated in US dollars, a drop in foreign demand is expected. Therefore, resulting in a downward trend of prices.
As for China, analysts think that we will be able to obtain a lot of information about the situation of the COVID-19 pandemic soon. The Lunar New Year holiday is approaching, and we will see what restrictions the country imposes and which cities it allows to travel.
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