Oil prices dropped at the first trading session of the week.

Oil traders are virtually going short, with the global market’s economic recovery outlook being called into question as COVID-19 infections rise.

What you should know: At press time, Brent crude futures dropped by about 1%, to $54.65 a barrel, after losing 2.3% on Friday. West Texas Intermediate futures lost about 1%, at $51.93 a barrel, having declined 2.3% also on Friday.

Increasing COVID-19 caseloads throughout the world continued weighing on oil prices, as oil traders doubted how long energy demand would hold up.

Stephen Innes, Chief Global Market Strategist at Axi, in a note to Nairametrics, gave key insights on macros weighing on oil prices

“Oil prices struggled from the mid-week after swelling production inventories then fused with the return of COVID in China, providing a not-so-rosy near-term demand signal. And adding for downside drift to the flow the slow roll-out of vaccines globally is walking back the timeline for jet fuel demand to take off.

The US dollar is strengthening due to the confluence of continental dilemmas. The global “risk-off” tone is also attracting US dollar safe-haven demand. A stronger US dollar seldom if ever makes for good bedfellows with higher oil prices.”

What to expect: Still, it remains crucial for OPEC+ to monitor the demand variables around lockdowns and stay responsive to changing conditions. Underlying demand will not approach normal levels until 2022 at the earliest, and vigilance from OPEC+ will continue to be important in supporting oil prices.

Gold prices suffered significant losses at their most recent trading session.

The yellow metal lost its shine at the expense of charging U.S dollar, whose surge of late astonished many investors amid the currency debasement expected from the U.S President-elect’s proposed $1.9 trillion COVID-19 support programme.

READ: Gold suffers worst monthly drop in four years

What you should know

• Gold futures at their most recent trading session settled at $1,829.90 an ounce, down by 1.2%.
• Although the yellow metal’s recent loss on a weekly basis moderated to just 0.3% on the week, that loss added to the previous week’s plunge of 3.2% — handing gold its worst two weeks in a row since November.
• The greenback was an outlier at the last trading session despite drops seen in U.S bond yields associated with the benchmark 10-year U.S. note, whose resurgence in the previous week had been the catalyst for the U.S dollar comeback.

READ: Copper hits six months high, Industrial demand spur bullish run

Stephen Innes, Chief Global Market Strategist at Axi, in a note to Nairametrics, gave insights on the odds weighing on the yellow metal in the near term.

• “With short dollar trades tempering over the great US dollar debasement story of 2021, it’s not such an easy glide path for gold to start the year. So, I suspect gold remains tied to the hip of the US dollar fortunes this quarter. The market then morphs into “sell the rally mode” as the US economy recovers tangentially to the vaccine distributions.”

READ: Silver surpasses three-week high, joins Bullish momentum

Bottom line

Investors are increasingly confronted with the reality that the pandemic is still far from being under control, thereby flocking back to the safe-haven currency despite the significant progress that was made in the past few months, and several COVID-19 vaccines already in the market.

Crude oil prices suffered their worst trading loss in a month, tumbling by more than 2% at Friday’s trading session.

Oil prices were under pressure on fears that recent COVID-19 lockdown measures sighted in the world’s largest buyer of crude oil, China, could in the coming days exhibit weakness in energy demand.

What you should know: A strong U.S dollar, the currency on which crude oil is primarily sold, made purchasing of the commodity less competitive for holders in other currencies like the Euro, Japanese yen, thereby weighing on oil prices

• U.S based oil contract, West Texas Intermediate futures, plunged by 2.2.% to settle at $52.36 per barrel. It is the oil contract’s biggest one-day drop since December 18, although it rounded out the week with a 0.5% upsides.
• The British-based oil contract, which is the global benchmark for crude, settled down $1.32, after losing 2.3% at $55.10. For the week, Brent crude prices lost about 1.6% in value.
• The world’s second-largest economy ramped up lockdowns yesterday, after reporting the highest number of daily Covid-19 cases in more than 10 months.

China capped a week that has resulted in more than 28 million people under lockdown as it suffered its first COVID-19 death on the mainland since May.

Stephen Innes, Chief Global Market Strategist at Axi, in a note to Nairametrics, spoke on the prevailing macro conditions keeping oil prices relatively high, taking into account Saudi’s recent pledge to curb production, and the influx of COVID-19 vaccines to tame the ravaging virus:

“With Saudi Arabia providing the cornerstone and bridging the gap to vaccine oil market lift-off. With the renewed enthusiasm about the US demand recovery due to the prospects for more stimulus and the new administration’s pledge to focus on the vaccinations’ rollout, oil prices are lifting higher locking to hash out higher ranges.”

What to expect: Oil traders are entering a critical phase as oil remains sensitive to the news, with negative implications for the demand recovery.

The oil market recovery is vital for blunting the effect of higher nominal US Treasury yields through the reflationary channel. If oil doesn’t fly higher, the reflation trade could fall flat on its face.