WTI supported above $52.00 despite bearish pandemic developments

It’s been a mixed day for the crude oil complex, but things are now looking a little more positive, with front-month WTI futures trading higher by just over 0.5% or around 30 cents and recovering back above the $52.50 mark in recent trade, having been sub-$52.00 in the early part of US trade. The complex now has its eyes on European session highs in the $52.80s, ahead of the key psychological $53.00 level that proved a magnet for most of last Thursday. Break above here could open the door to recent highs in the upper-$53.00s.

Crude caught between conflicting forces

European lockdown concerns, with reports suggesting that French President Macron might be about to announce a third national lockdown this week, as well as vaccine delays (AstraZeneca informed the EU it was cutting deliveries in Q1 by 60% last Friday) have capped crude oil market gains on Monday. Lockdowns imply softer demand in the immediate future and vaccine delivery delays imply a delay to the post-pandemic recovery.

Meanwhile, the US and UK are on the verge of tightening international travel restrictions in a bid to prevent the entrance of foreign Covid-19 strains, which will further hurt the airline industry and jet fuel demand.

Meanwhile, Merck axed their vaccine development programme after poor data and Moderna said their vaccine, though still effective against the UK Covid-19 strain, may be less effective against the South African strain.

Still, despite the above, crude oil markets seem not to have abandoned the belief that a strong post-Covid-19 economic recovery coupled with continued OPEC+ flexibility will lead to higher prices.

Supply-side developments have been mixed; Iraq is set to cut output in January and February by over 250K barrels per day to make up for under compliance to agreed OPEC+ cuts in 2020. But recent US EIA inventory data indicated a softening of demand there, while Baker Hughes rig count data showed more production coming online. The Schork Report said that the rig count is expected to rebound further in the weeks ahead as producers maximise output ahead of spring.

WTI key levels