Crude Oil Prices Struggle To Hold Gains As Stimulus Enthusiasm Fades

Crude oil prices regained some strength on Tuesday as the US Dollar retreated, but overall momentum remains weak from a technical perspective. Traders are eyeing a potentially larger stimulus check amount after the House of Representatives voted to raise pandemic relief payments to $2,000 from $ 600. The proposal is now pending Senate approval.

Stocks across Asia-Pacific markets rallied vividly alongside US equity futures, reflecting optimism about an economic recovery with the help of fiscal stimulus and the vaccine rollout. The prospects for energy demand may be brightened by Covid-relief aid, especially if the Senate approves the House’s proposal for a higher payment amount to individuals

Still, concerns remain over tighter Covid-related travel restrictions around the world, which may serve to limit upside potential for oil. In the near future, uncertainties surrounding the uneven distribution of vaccines, new coronavirus strains, and reduced travel activity may post additional uncertainty over the energy demand outlook. The OPEC+ coalition have agreed in early December to increase production by 0.5 million barrels per day starting in January 2021, gradually easing a total production cut of 7.7 million bpd that was carried out earlier this year to shore up oil prices.

Earlier this month, US DOE crude oil inventories have climbed to 503.2 million barrels, reaching a 4-month high (chart below). This was mainly due to a large, 15-million-barrel build in stockpiles in the first week of December. Inventories have seen fallen by 3.13 and 0.56 million barrels in the following two weeks respectively, but the amounts were not substantial enough to boost market confidence.

WTI Crude Oil Prices vs. DOE Crude Oil Total Inventory – Weekly

Crude Oil Prices Struggle to Hold Gains as Stimulus Enthusiasm Fades

Source: Bloomberg, DailyFX

The prospects for a gradual rollout of vaccines and the passing of US stimulus package have fueled a whopping 45% rally in WTI prices from early November through mid-December. For now, prices appear to have entered a period of consolidation, waiting for more concrete evidence to justify the rally. Trading appears to be thin this week due to a lack of market participants and poorer liquidity.

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