Fresh Hopes of US Stimulus, Weaker Dollar Favour Crude Oil

January 20, 2021
crude oil

By Adedapo Adesanya

Oil prices closed higher on Tuesday as the market hopped on a weaker Dollar and hopes of a better economic stimulus in the United States.

During the session, the Brent gained 30 cents or 0.54 per cent to sell at $56.20 per barrel, while the West Texas Intermediate (WTI) crude made a 0.45 per cent or 24 cents growth to trade at $53.22 per barrel.

The US Dollar slipped from close to its highest in nearly a month, dropping 0.3 per cent and this strengthened the position of other currency holders as a weaker greenback increased their stance on the commodity.

The market also received a boost as the United States Treasury secretary, Janet Yellen, used her confirmation hearing to bolster the case for additional fiscal stimulus.

The move, if successful, would help to mend the economic damage inflicted by the coronavirus pandemic on the world’s largest economy.

President-elect Joe Biden had last week rolled out a $1.9 trillion coronavirus relief plan that includes cash payments to Americans and money for distributing COVID-19 vaccines.

Analysts noted that strong (stimulus) package would psychologically lift the mood of the investor and a good many consumers are going to go out and spend.

These factors outweighed other stronger ones especially in terms of demand as the International Energy Agency (IEA) cut its forecast for 2021 crude demand.

The IEA on Tuesday cut its forecast for demand in 2021 by 280,000 barrels a day to 5.5 million barrels a day. The bleaker outlook focused mainly on the start of the year, with a 600,000 barrels per day cut to its forecasts for the first quarter and a 300,000 barrels per day cut to its forecasts for the second quarter.

The drop in the first quarter demand is due to a combination of surging case counts across the US and Europe, as well as calls within China to limit travel for the Lunar New Year, a period that sees more people travel than any other single event in the most populous counter in the world.

The Paris-based group, which advises the world’s largest economies on energy-related matters, expects higher demand to allow world oil supply rise by 1.2 million barrels per day this year, following a record decline of 6.6 million barrels per day in 2020.

The IEA expects global oil stocks to fall by 1.1 million barrels per day in the first quarter of 2021, assuming the Organisation of the Petroleum Exporting Countries and its allies, OPEC+, is fully compliant with the latest agreement of increasing production by only 500,000 barrels a day.

Despite the mood on Tuesday, there are also fears among investors due to President-elect Joe Biden’s inauguration on Wednesday, fearing more far-right mob violence.

Weekly data on US petroleum supplies from the Energy Information Administration (EIA) will be released on Thursday, a day later than usual because of Monday’s Martin Luther King, Jr. holiday in America.

Adedapo Adesanya

Adedapo Adesanya is a journalist, polymath, and connoisseur of everything art. When he is not writing, he has his nose buried in one of the many books or articles he has bookmarked or simply listening to good music with a bottle of beer or wine. He supports the greatest club in the world, Manchester United F.C.

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