WTI drops back below to $59.00 level amid downbeat finish to the week

Front-month futures contracts for the American benchmark for sweet light crude, West Texas Intermediary (WTI), continued its pullback into settlement on the final trading day of the week, settling the session $1.27 lower at $59.26. In post-settlement trade, crude oil futures have dropped back to the $59.00 level, though have broadly remained supported ahead of Asia Pacific session lows around $58.50.

Assuming that, with volumes set to continue to fall in the coming hours ahead of the close of commodity futures trade at 22:00GMT, sentiment does not take a drastic turn for the better, WTI is set to close out a second consecutive day in the red. The last two days have seen WTI reverse over $3 from highs above the $62.00 level and the American benchmark for sweet light crude oil is on course to post losses of more than 1% on the week. Indeed, focus in the last two days has turned to the more bearish impulses of Texas/Southern State oil production coming back online and on the potential for a new US/Iran that could see restrictions lifted on the country’s ability to start exporting crude oil again.

Regarding the former, the majority of the State of Texas’ 4.6M barrels per day in crude oil production was shuttered amid the onset of the recent “deep freeze”, but hopes are that most of this will be back online within days as temperatures normalise. On the latter, recent reports have indicated that the US might be willing to meet with Iranian officials and broker some sort of “trust-building” deal that could set the stage for a potential full return to the JCPOA or some kind of new deal. According to a senior EU official, the EU might act as some kind of deal broker and is said to be working on the potential to hold an informal meeting of JCPOA members. Thus, the potential for a return to the market of full Iranian crude oil output is on the mind of the market. Note, however, that the White House has said that it is not willing to withdraw snapback sanctions on Iran given its recent nuclear transgressions and recent news from the UN’s Nuclear Watchdog, which found uranium particles at two Iranian sights which it says Iran has failed to explain, may harden the US’ resolve.

Despite downside over the past two days, WTI crude oil still trades nearly 13% higher on the month and s strong degree of support going forward seems likely given positive demand-side developments; Covid-19 infection rates continue to drop in key developed markets and vaccine rollouts continue, raising the scope for economic reopening later in the year and an aggressive global economic recovery. Markets still very much expect vaccines to work and recent news out of the UK that Public Health England is set to release data concluding that vaccines stop two-thirds of infections and transmission will boost hopes that the virus can be brought to heel. Meanwhile, the US Congress still looks likely to implement at least one more large fiscal stimulus package and global central bankers look intent on keeping interest rates at rock bottom and monetary conditions ultra-accommodative. All of the above ought to mean that 2021 is a very good year for crude oil demand.