WTI in wait-and-see mode between $59.00-$60.00 parameters

Crude oil markets continue to see range-bound trading conditions; front-month WTI futures remain locked between the $59.00-$60.00 ranges that have prevailed over the past few days and have been swinging between slightly in the red and slightly in the green. Beyond the recently established intra-day range, the main levels of support and resistance to look out for are the $58.00 and $61.00 areas.

Driving the day

Indecisive trading conditions in crude oil markets are not too surprising, given the numerous themes being juggled by crude oil market participants at the moment, themes which seem at the moment to be cancelling one another out. On the bullish side of the equation; optimism has been growing about the outlook for the global economic recovery in recent weeks, particularly with regards to the US economy following the string of strong data releases at the end of last week/start of this week. Vaccine rollouts continue and sooner or later market participants are expecting an end of pandemic containment restrictions and resurgence in demand for crude oil.

However, near-term demand catalysts are marring the otherwise rosy picture; the pandemic has been accelerating in India, Brazil and some key developed Asia countries, raising the risk of tougher lockdowns there. Meanwhile, Europe remains (mostly) under lockdown and while Italy will soon be easing restrictions, Germany is likely to toughen them. The darkening of the near-term crude oil demand outlook has been reflected in downwards revisions to desks’ and major oil market institution’s oil demand growth forecasts for 2021. Meanwhile, supply-side news has been more negative than positive as of late; OPEC+ are gradually increasing output over the coming months according to last week’s decision and the US and Iran look to be taking steps in the right direction towards a return to the JCPOA meaning a large lump of Iranian supply could soon return to the market (though desks think the rest of OPEC+ will cut output to make up for this).

For crude oil markets to resume their long-term upwards trajectory, the near-term demand outlook is going to have to take a turn for the better, i.e. the likes of Europe, India and Brazil getting the virus under control and easing lockdowns. According to UBS commodity analyst Giovanni Staunovo, “oil is currently in a wait and see mode, with market participants looking at the vaccination pace to understand when oil demand will recover further and at nuclear talks in Vienna to see when more Iranian barrels might come back”.