Crude Oil Prices Hit 11-Month High On Reflation Hopes, Falling Stockpiles

WTI crude oil prices surged more than 3% to US$ 53.9, hitting their highest level seen since February 2020. A large draw in the API crude inventories and a weakening US Dollar gave oil prices a fresh boost alongside reflation hopes. The oil report pointed to a 5.82-million-barrel decline in inventories for the week ending January 8th, compared to a baseline forecast of a 1.66-million-barrel drop.

Recently, prices appear to be riding favorable tailwinds since Saudi Arabia unilaterally announced a production cut of 1 million bpd in February and March amid dissents among OPEC+ members. Since then, WTI prices have surged by more than 13% on hope that Saudi’s willingness and ability to cut could effectively rein market supply and shelter prices through the Covid pandemic.

Oil prices are also buoyed by stimulus and reflation hopes after Democrats gained control of the Senate, raising the likelihood of further spending that aims to revitalize demand and output in the long term. President-elect Joe Biden will unveil a new stimulus plan on Thursday, which will be closely eyed by commodity and currency traders for clues on future spending and inflation outlooks.

WTI Crude Oil Price – Daily Chart

Crude Oil Prices Hit 11-Month High on Reflation Hopes, Falling Stockpiles

The near-term energy demand outlook, however, is still overshadowed by tightening border restrictions and lockdowns around the globe, as more cities and states are facing a new wave of new coronavirus strains that were reported to be more transmissible than the original type. Malaysia has declared a state of emergency on Tuesday after imposing a 14-day lockdown in key areas. China imposed lockdowns in parts of the northern province of Hebei and discouraged people from traveling between provinces to curb the spread of virus. South Korea’s December unemployment rate unexpectedly hit a 10-year high due to the pandemic’s impact.

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