Stuck in Neutral

This weekly report is an excerpt from our Short-Term Outlook service analysis, which covers a period of eight quarters and provides monthly forecasts for crude oil, natural gas, NGL, refined products, base petrochemicals and biofuels.  Contact John Paisie (++1-832-517-7544 or E-mail) for the detailed analysis or for more information about the Short Term Outlook.

The price of Brent crude oil closed last week at $55.88, which continues the recent trend of the price of Brent crude oil slowly creeping upwards. In contrast, the price of WTI closed at $52.20, which was slightly down from the prior week’s close of $52.27.

With respect to fundamentals there was some positive news pertaining to inventories of crude oil in the US, which, as reported by EIA, fell by nearly 10 million barrels during the previous week. The impact was partially offset by an increase in inventories of gasoline by some 2.5 million b/d, while inventories of diesel fuel fell by 815,000 b/d.

Other factors that affected oil prices include the following:

  • Signs that the US economy is still struggling to move back to full recovery, including another disappointing jobless claims report, which indicated that the another 847,000 workers in the US lost their jobs
  • Struggles with the rollout of vaccines continues in the US, as well as in Europe – but there is some positive news in that the Johnson & Johnson vaccine will soon be available to the market. While the test data is not quite as impressive as the Moderna and Pfizer vaccines, the Johnson & Johnson vaccine is easier to ship and handle and requires only one shot.
  • The pace of new COVID-19 cases in the US has been declining since January 8 and are now at the lowest level since mid-November of last year. Additionally, there is the possibility that India is moving past COVID-19 with cases in India falling to an average of around 13,000 new infections per day, which is a significant reduction when compared to 100,000 that was occurring during September of last year.

Another factor to watch out for is the impact of the disruption in the US equity markets because of the difficulties faced by some hedge funds, which were caught in a “short squeeze” led by retail investors. While this development would not appear to be sufficient to cause a systemic issue for the financial markets, it is forcing the selling of some long positions to provide funds to cover short positions – and putting some downward pressure on the equity markets. Furthermore, a similar dynamic is now appearing in the silver market.

While more of long-term factor, another development to keep in in mind is the announcement by GM to produce only zero-emission vehicles by 2035. While there remains uncertainty of the ability of GM to achieve this objective, the announcement by GM highlights the growing momentum of the desire of major consumers to move away from oil.



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