Crude Oil Prices Break Key Chart Resistance As Vaccine Rally Heats Up

WTI crude oil prices registered a two-day gain of 6.8% as investors cheered a string of positive vaccine developments that brightened the prospects for economic normalization. “Risk-on” sentiment is prevailing, with the Dow Jones Industrial Average (DJIA) piercing the 30,000 mark for the first time. Energy(+5.12%) was the best performing S&P 500 sector overnight, thanks to higher oil prices.

President-elect Joe Biden has started a formal transition this week, removing post-election uncertainties and paving the way for significant shifts in US foreign policy. He said America was “back, ready to lead the world” in a speech on Tuesday, marking a sharp reversal of President Trump’s “America first” policy. He has nominated former Fed Chair Janet Yellen as his new Treasury Secretary, who may work with Jerome Powell in unleashing US fiscal and monetary stimulus to foster a swifter recovery.

Investors are perhaps looking beyond current headwinds in anticipation of a faster pace of removal of social distancing and lockdown measures with the help of Covid-19 vaccines. On the flipside however, markets appear to be overheated with a sense of complacency, flagging risks for a short-term pullback should profit-taking activities ramp up.

Meanwhile, oil traders are also waiting for a decision from the OPEC+ coalition to delay by 3-6 months a planned production hike scheduled in January 2021, in an effort to cushion the pandemic’s impact. This is another key driver behind oil’s rally in recent weeks.

On the macro front, Markit US manufacturing PMI registered its fastest pace of expansion in 74 months (chart below). A stronger-than-expected recovery in manufacturing activity underpinned the resilience of the underlying economy amid another viral wave. Today’s release of US durable goods orders, core PCE inflation, initial jobless claims and EIA crude oil inventories data will be closely eyed too. 

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