Crude Oil Cementing A Strong Support Level
Crude oil kickstarted 2021 with a rally, breaking above $50 per barrel. This rally came after the announcement by OPEC leader Saudi Arabia that they will be volunteering to cut oil production by 1 million barrels-per-day (bpd) in February and March. Most of the other OPEC+ members will be holding their production level unchanged while Russia and Kazakhstan will be allowed to increase production by a combined 75,000 bpd. Together with a couple of other reasons, crude oil price may have found itself a strong support at the 50 level for now.
Surplus issue temporarily resolved
Throughout the OPEC+ meeting, Russia and Kazakhstan have been pushing for a continued increase in oil production by 500,000 bpd for February, just as how the previous meeting back in December had concluded. However, the advisory OPEC+ joint ministerial committee highlighted that the recovery of oil demand this year may be negatively impacted as lockdown and other restriction measures were imposed in many countries in an effort to contain the virus. To make matter worse, a new strain of the COVID-19 virus was found and is expected to be up to 70% more transmissible than the original strain. As a result, measures to curb the spreading of the virus may be extended for a longer period of time and so an increase in production right now may lead to the piling up of oil supply that may incur more storage costs. Nonetheless, the voluntary cut by Saudi will most likely prevent the problem of oversupply from happening, relieving the downward pressure on oil prices.
Dollar weakness to persists
With the inauguration of Joe Biden as the next President of the United States, the U.S. dollar may continue to remain weak in the short run. This is mainly due to Biden’s tax policy, which is not very business-friendly since he is looking to increase corporate tax rate and also impose a corporate minimum tax to companies with more than $100 million in net income. And now that the Democratic Party has full control of Congress, nothing will stand in the way of the Biden Administration, making it easier for the administration to carry out any policies they deem fit.
Rising tensions in the Middle East
On Monday, Iran’s Islamic Revolutionary Guard Corps detained a South Korean oil tanker in the Strait of Hormuz that was headed to the United Arab Emirates from Saudi Arabia. Iran claimed that it has at least $7 billion of funds from oil sales trapped in South Korea that it needs for purchasing of goods like the COVID-19 vaccine. This incident has raised the question of security when transporting oil along the Gulf that can lead to uncertainty, thus potentially affecting the supply of oil.
Surplus issue temporarily resolved
Throughout the OPEC+ meeting, Russia and Kazakhstan have been pushing for a continued increase in oil production by 500,000 bpd for February, just as how the previous meeting back in December had concluded. However, the advisory OPEC+ joint ministerial committee highlighted that the recovery of oil demand this year may be negatively impacted as lockdown and other restriction measures were imposed in many countries in an effort to contain the virus. To make matter worse, a new strain of the COVID-19 virus was found and is expected to be up to 70% more transmissible than the original strain. As a result, measures to curb the spreading of the virus may be extended for a longer period of time and so an increase in production right now may lead to the piling up of oil supply that may incur more storage costs. Nonetheless, the voluntary cut by Saudi will most likely prevent the problem of oversupply from happening, relieving the downward pressure on oil prices.
Dollar weakness to persists
With the inauguration of Joe Biden as the next President of the United States, the U.S. dollar may continue to remain weak in the short run. This is mainly due to Biden’s tax policy, which is not very business-friendly since he is looking to increase corporate tax rate and also impose a corporate minimum tax to companies with more than $100 million in net income. And now that the Democratic Party has full control of Congress, nothing will stand in the way of the Biden Administration, making it easier for the administration to carry out any policies they deem fit.
Rising tensions in the Middle East
On Monday, Iran’s Islamic Revolutionary Guard Corps detained a South Korean oil tanker in the Strait of Hormuz that was headed to the United Arab Emirates from Saudi Arabia. Iran claimed that it has at least $7 billion of funds from oil sales trapped in South Korea that it needs for purchasing of goods like the COVID-19 vaccine. This incident has raised the question of security when transporting oil along the Gulf that can lead to uncertainty, thus potentially affecting the supply of oil.
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