Traders Capitalize on Bullish Cocktail of News
Even though the pandemic is not yet slowing down, oil prices have good reason to start the week with gains, as traders capitalize on a bullish cocktail of news on Monday morning.
That’s what Rystad Energy’s head of oil markets, Bjornar Tonhaugen, said in a statement sent to Rigzone on Monday. In the statement, Tonhaugen noted that U.S. President Joe Biden seems to be pushing for a quick approval of his proposed $1.9 trillion pandemic relief package, which he added was a development interpreted by the market as a clear indication that the new U.S. administration aims to kick-start an economic recovery.
“The quicker people, businesses and industry receive government support, the quicker spending will increase from current low levels,” Tonhaugen stated.
“Even if the distribution and application of Covid-19 vaccines is target number one in the U.S., President Biden is making clear that the economy needs a cash injection as well, as the US has not yet recovered in a way similar to its eastern foe China,” he added.
Tonhaugen also outlined that bullish news is coming from the OPEC front, with the market getting an “extra treat” from Iraq.
“Iraq, amazingly for fellow members that had nearly lost hope on its compliance, promised to reduce its oil production in January and February, to compensate for exceeded quota in 2020,” Tonhaugen said.
“Essentially that means that Iraq will cut about 250,000 barrels per day (bpd) of its December production, a significant amount that will drive its total output to about 3.6 million bpd, the lowest in years,” he added.
Another reason the market is up today is the market turbulence that a conflict in Indonesia is creating, according to Tonhaugen.
“Indonesia seized Panama and Iran-flagged oil tankers in its waters and this unusual event has created some uncertainty about the stability of eastern oil routes, as the country is a pathway for oil tankers to reach demand-heavy markets such as China, Japan and South Korea,” he stated.
Despite the bullish signals on Monday, Tonhaugen warned for caution.
“Covid-19 infections and with them restrictions are increasing in China. Meanwhile Europe only seems to get tighter and tighter and we expect to see consequences in road fuel consumption,” he said.
“It is not really evident in prices that the market has yet realized how much fewer road fuel is being used compared to normal seasonal consumption as a result of the new strict lockdowns and restrictions,” Tonhaugen added.
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