The over-performance by Saudi Arabia that has cut its crude oil production by 1 million barrels per day (more than mandated), has helped in reducing OPEC crude oil production to its lowest point in nearly 30 years, thus sending crude oil price soaring to about $42 support levels, and dampening growing concerns of COVID-19 resurgence.
In the month of July, a report from the International Energy Agency (IEA) showed a 108% compliance rate against 89% a month earlier.
Crude oil production of OPEC+ members for June reduced by almost 2 million barrels, compared to the month of May showing 33.4 million barrels per day. This agreement by major oil producers has helped in limiting oil production.
The report from International Energy Agency (IEA) said, “On the supply side, global oil production fell sharply in June to stand 13.7 million barrels per day below the April level. The compliance rate with the OPEC+ supply agreement was 108%.”
Data from the report also shows that in the month of June, major oil producer, Russia fulfilled its quota for reducing oil production by 100%.
“This solid performance by the OPEC+ group has been supplemented by substantial market-driven cuts, mainly in the United States,” the report added.
Meanwhile, Edward Moya, senior market analyst at Oanda, in a note, said that Crude prices got a boost for the session, in part due to the “upbeat COVID-19 vaccine and treatment news” and a softer dollar, but U.S. benchmark prices remain “anchored below the $41 level and will likely struggle for any major moves” until after next week’s OPEC+ Joint Ministerial Monitoring Committee meeting.
He added that, “The demand outlook risks warrant a discussion for OPEC+ to consider extending production cuts into August.”
Oil prices tumble on fears that energy demand is dropping
Oil prices drifted lower after digesting a surprising build in U.S. crude oil inventories that re-ignited fuel demand anxiety.
Oil prices drifted lower at the fourth trading session of the week, after digesting a surprising build in U.S. crude oil inventories that re-ignited fuel demand anxiety.
What you should know: At the time of drafting this report, Brent crude prices dropped by 0.37% to trade at $55.87 a barrel, and West Texas Intermediate futures plunged by 0.34% to trade at $53.13 a barrel.
- Oil prices gave up some of their previous gains made on hopes of a massive COVID-19 stimulus program under U.S. President Joe Biden, although both oil major benchmarks were trading far above $50/barrel.
- Recent data obtained from the American Petroleum Institute revealed a gain of 2.562 million barrels for the week ending January 15. This was against the 300,000-barrel drop in forecasts prepared earlier by some energy experts.
Stephen Innes, Chief Global Market Strategist at Axi, in a note to Nairametrics, gave valid insights on the effect COVID-19 and other macros have on oil prices.
“Oil prices look a tad vulnerable to potential profit-taking after US crude stockpile bearishly rose 2.56 million against consensus draw. Simultaneously, the near-term China crude demand forecast looks high and susceptible to revision lower as lockdown spread in the country ahead of the Lunar New Year.
“While oil traders see through longer lockdowns on the premise that vaccinations will quickly lead us out of the pandemic, COVID mobility clampdowns still hurt the very near-term view.
“And since calls for a commodity supercycle have been many after the November vaccine turnaround, open interest in Brent and WTI has increased hugely, suggesting that the market remains very susceptible to any potential bearish headlines big or small, from a positioning perspective alone.”
What to expect: OPEC production at the moment remains well below the level required to meet anticipated demand. It should continue to drive a reduction in oil inventories as the global economy gradually recovers.
Gold’s appeal up thanks to a weaker U.S dollar
More COVID-19 relief programs pushed the yellow metal’s appeal up as an inflation hedge.
Gold was up at Wednesday’s trading session, thanks to a weaker dollar coupled with statements from Janet Yellen, the incoming Secretary for the U.S Treasury, calling for more COVID-19 relief programs; these helped to push the yellow metal’s appeal up as an inflation hedge.
What you should know: At press time, Gold futures were up 0.51% at $1,849.60/ounce.
- The Secretary of the Treasury nominee made key statements during her Senate confirmation hearing held yesterday, where she discussed the economic gains of a large stimulus package that would far outweigh the risk of a higher debt burden.
- The greenback dropped for the third consecutive trading session after Janet Yellen said in her hearing that tax cuts enacted in 2017 for large companies should be reversed.
Stephen Innes, Chief Global Market Strategist at Axi, in a note to Nairametrics, spoke on the odds that the precious metal currently has amid a relatively strong greenback.
“Maximum stimulus overdrive, favorable to bullion turnaround in taper talk and slightly weaker dollar paint an encouraging backdrop for gold prices provided real rates oblige.
“Gold has been facing headwinds from a strong US dollar and higher real rates so far this year. The market is trying to hold the yellow metal above crucial support levels, which is encouraging,” Innes stated.
What to expect: However so far, gold has struggled to recover convincingly past the $1850 psychological level, and the 50dma around $1960 remains the ultimate target Q1 for gold bulls.
Oil prices rally high on incoming COVID-19 relief program
Brent oil futures gained 0.68% to trade at $56.28 a barrel adding to yesterday’s 2.1% gain.
Oil prices were all fired up at mid-week trading session in London.
Holding on to their previous gains on reports that the incoming Joe Biden administration will offer more quantitative easing programs, boosted hopes for energy demand
What you should know: At press time, Brent oil futures gained 0.68% to trade at $56.28 a barrel adding to yesterday’s 2.1% gain. West Texas Intermediate futures rallied by 0.79% to trade at $53.40 a barrel, building on a 1.2% rise seen at the last trading session.
- Both major oil benchmarks stayed above the $50 mark.
- The Treasury Secretary nominee, Janet Yellen advised the U.S lawmakers in acting fast on COVID-19 support packages during her Senate confirmation hearing held yesterday.
Stephen Innes, Chief Global Market Strategist at Axi in a note to Nairametrics gave valuable insights on the mindset of energy traders in regards to Saudi’s recent cut and massive stimulus package on its way to financial markets stating;
“The energy markets are racing higher out of the gates in Asia aided by a lower dollar and hopes of a sizeable economic stimulus package from the Biden administration.
“Energy traders are packing in a chunky stimulus-response that might matter to investors from both a commodity and currency perspective where the US dollar could weaken to oil prices benefit since crude is priced in US dollars.
“The most favorable elixir of US stimulus and the imminent Saudi production cut bolstering efforts of OPEC+ to keep supply well below demand this year continue to help price action.”
What to expect: Ahead of presidential inauguration day, Oil traders offer up a Biden policy seal of approval on the agenda’s sequencing with vaccinations plus stimulus now and taxes later, to drive risk through the first half of 2021.