Oil prices rallied at the mid-week trading session after industry data showed that U.S. crude inventories dropped unexpectedly last week amid fears that the COVID-19 infection rates were getting out of control.
- U.S. West Texas Intermediate (WTI) rose 0.2%, to trade at $52.71 a barrel, reversing some of yesterday’s loss.
- Brent crude oil futures rallied by 0.2% to $56.02 a barrel.
What this means: Recent data retrieved from the American Petroleum Institute (API) showed crude oil inventories in the world’s biggest oil consumer, dropped by 5.3 million barrels in the week to Jan. 22 compared with analysts’ expectations in a Reuters poll for a build of 430,000 barrels.
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China’s National Health Commission revealed that the world’s largest importer of oil recorded 124 cases on Jan. 24, up from 80 earlier, which is the worst wave of new COVID-19 infections seen since March 2020.
Stephen Innes, Chief Global Market Strategist at Axi, in a note to Nairametrics, spoke on the prevailing macros helping oil prices though other reports reveal that oil would remain under pressure amid energy demand/supply rebalancing;
“Oil received a timely fillip after the API reported that US crude supplies declined 5.3 million barrels bullishly against consensuses.
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“But problems may continue to linger under the hood as the data also reportedly indicated gasoline stock rose by near 3.1 million barrels. At the same time, the draws at Cushing make sense in backwardation markets.
“Even when mired in the pandemic’s darkest days, oil prices remain incredibly resilient in no small part due to OPEC’s dogged determination to stay in damage control mode adjusting supply constraints to alleviate the currently projected level of attrition to global demand.”
READ: Crude oil prices drop, COVID-19 cases hit 38 million
What to expect: While the general upward direction of travel in the market makes sense, it’s difficult for oil traders to make a definitive near-term shift to the next price level higher, given the very uncertain near-term demand outlook.
