Oil prices ended the month of January with gains of more than 7% which was partly triggered by Saudi Arabia’s commitment to implementing a unilateral production cut of 1 million barrels a day, starting next month.
What you should know: U.S based oil contract, West Texas Intermediate futures, based on the front-month contract close on Dec. 31, posted a climb of about 7.6% for the month of January, by settling at $52.20 a barrel on the New York Mercantile Exchange.
- However, oil prices settled lower for the second straight week on fears that energy demand might face challenges.
- This is due to the continued threat of new COVID-19 variants prolonging the pandemic that has negatively disrupted global financial markets at unprecedented levels.
Stephen Innes, Chief Global Market Strategist at Axi, in a note to Nairametrics, gave critical insights on macros influencing oil prices.
“Given the delay in vaccine rollouts, we may be getting the next round of lockdowns very soon, judging by Merkel’s recent “the pandemic has slipped out of control” comment.
“And throw China’s lunar new year mobility clampdown into the mix, things don’t look great.
“I want to say this week’s (oil) inventory draws have us headed in the right direction.”
What to expect: In spite of oil’s impressive gains in the first month of 2021, negative market sentiment (rising COVID-19 caseloads) is far too strong for oil to sustain any rally until the vaccine distribution channels get fixed.