Oil prices fell their most in a week after the first U.S. crude build in six weeks on the fear that the world’s largest economy might distort energy demand/supply rebalancing.
What you must know: U.S based oil contract, West Texas Intermediate, lost 1.6%, at $52.27 per barrel. It was WTI’s worst daily plunge since last Friday when it fell 2.2%.
- But for the week itself, the U.S. crude contract lost about 0.2%.
- British based Brent, the global benchmark for crude, settled 1.4%, at $56.10.
- The gain in crude oil inventories coincided with President Joe Biden’s recent statements calling on its citizens for tough days ahead from the Covid-19, which could kill up to about half a million Americans.
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.