WTI flat above $59.50 as global demand concerns hold bullish sentiment in check

Front-month WTI futures continue to consolidate within recent ranges, having spent practically all of Thursday’s session so far between the $59.00 and $60.00 levels. Crude oil market participants continue to juggle positivity about the prospect for a global economic rebound as a result of vaccines (led by strong growth in the US), against near-term demand concerns as a result of rising infection rates in a number of key crude oil-consuming countries. For now, WTI is trading just above the $59.50 mark and is flat on the session.

Driving the day

Crude oil markets are broadly failing to benefit from what would typically be bullish FX and equity market conditions for the energy complex; the US dollar is lower as a result of lower US government bond yields and US equities are performing well, with the S&P 500 pushing on to fresh all-time high levels close to 4100. Risk appetite, in FX and equity markets at the very least, is seemingly being boosted by Wednesday’s widely perceived as dovish FOMC minutes and an ongoing sense of positivity about the US economic recovery in wake of strong data, bullish forecasts from the likes of the IMF and upbeat Fed speak (with regards to the state of the economy, anyway). In terms of the latter, Fed Chair Jerome Powell will have a chance to reflect on recent strong data releases in the US when he speaks at an IMF panel at 17:00BST; he is likely to be upbeat on the recovery, but will reiterate that the US is still a long way from the Fed’s goals and thus policy is set to remain accommodative for a long time (a bullish combination for the likes of equities and crude oil).

There are a few crude-oil-specific reasons as to why crude oil is failing to benefit from the broader sense of optimism. Firstly, traders continue to sight concerns about rising inventories; as a recap, Wednesday’s inventory report saw a much larger than expected build in gasoline inventories. Secondly, traders also continue to sight weakness in the near-term demand outlook for crude oil as the state of the Covid-19 pandemic worsens in a number of key markets such as Brazil and India. The trajectory of the pandemic is also concerning in Canada, Japan and South Korea, hence these countries being tilted towards tougher economic restrictions in the near future rather than looser conditions. Meanwhile, Europe remains in lockdown for the foreseeable future.

In terms of supply-side fundamentals, the major theme to consider is the potential return of Iranian supply if the US and Iran can get a deal. Though a deal still seems a long way off, steps were taken in the right direction earlier in the week with both countries engaging in indirect talks in Vienna, with European nations acting as mediators. Elsewhere, crude seems to have largely ignored the news that security forces may disrupt 300K barrels per day in supply from Libya’s El Sharara oil field within two weeks if their pay demands are not met.