WTI choppy either side of $53.00 after pulling back from fresh 11-month highs

• Crude oil markets have seen unusually choppy price action over the past few hours.
• WTI pulled back from fresh 11-month highs amid profit-taking after the CME pit open.
• The fundamental backdrop remains conducive to further gains, however.

Crude oil markets have seen unusually choppy price action over the past few hours (compared with recent days/weeks anyway). At the 14:00GMT Chicago Mercantile Exchange (CME) pit open, which is often followed by heavy increases in trading volumes and volatility in crude oil markets, WTI dropped from around $53.50 to set fresh lows of the day in the $52.50s and has since been swinging either side of the $53.00 level. On the day, WTI trades with losses of around 30 cents or just over 0.5%.

No headline, piece of new or theme, in particular, was behind the downside at the time. Rather it appears as if there was just a sudden rush to take profits, given that crude oil markets had advanced to fresh 11-month highs already during Wednesday’s European morning session of around $53.90.

A larger than expected drop in official US EIA crude oil inventories, as well as Cushing inventories, helped to lift crude oil markets from lows at 15:30GMT. However, the positive move was short-lived given a larger than expected build in refined products.

Though crude oil markets have lost some momentum on Wednesday, bulls will still be eyeing a test of the February 2020 highs just below $54.50 over the coming days/weeks.

Fundamentals backdrop remains bullish

Despite modest downside seen on Wednesday, the fundamental backdrop remains bullish for crude oil markets. Much has already been made about how markets are expected to be undersupplied later in the given expectations for a rapid economic recovery as vaccines allow major economies to reopen combined with continued agreement to maintain output cuts amongst OPEC+, which is further helped by the Saudi Arabian’s additional 1M barrel per day voluntary in February and March. This voluntary cut has helped to ease concerns over the possibility that markets become oversupplied in the coming months as a result of tougher lockdowns across Europe, the US and now even parts of Asia (China just posted its largest jump in Covid-19 cases in five months).

Escalating tensions between the US (and its allies) versus Iran over the past few weeks have been another factor supporting crude oil markets, just on the off chance anything does kick off and disrupt the flow of crude oil around the Strait of Hormuz (one-fifth of the world’s oil passes through this thin channel of the sea just to the South of Iran). Iran has reportedly been conducting naval missile exercises in the Gulf of Oman and, as a reminder, recently seized a South Korean-flagged tanker, detaining the crew.

Tensions are likely to ease somewhat upon the arrival of the incoming Biden administration, who are more likely to follow in the deal-making footsteps of former Democrat President Barack Obama rather than the Trump administration's pressure tactics. However, the Biden administration is unlikely to take too kindly to reports that Iran is taking news steps towards possible atomic-weapon production, said the United Nations inspectors said in a confidential report seen by the Wall Street Journal.