Crude Oil Surges As Economic Recovery Aids Outlook, Copper Faces Technical Hurdle

Oil prices are surging this week on declining inventory levels, OPEC+ developments, and an improving global economic outlook. U.S. benchmark West Texas Intermediate (WTI) prices rose above the 56 handle for the first time since last January. Increased stimulus bets have also bolstered prices as Democrats on Capitol Hill continued progress towards passing a massive $1.9 trillion fiscal relief package. Along with oil prices, markets are reflecting optimism in fiscal stimulus bets through the 10-year Treasury yield as investors move away from the safety of US government bonds.

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Crude oil prices climbed nearly 8% so far this month following an 8.28% gain in January. Tightening supply levels have helped lift the commodity as Covid-induced economic restrictions continued to ease across major economies. The US Energy Information Administration’s petroleum report for the week ending January 29 showed a 994k crude oil inventory draw. Analysts were forecasting a build of 446k.

OPEC+ kept its oil output policy unchanged on February 3 after its meeting of the Joint Ministerial Monitoring Committee (JMMC) concluded. A press release statement noted that compliance with production adjustments remain high among participating countries. Moreover, the statement also praised falling inventory levels in OECD countries but cautioned that the outlook remains uncertain.

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While a question mark continues to hang over the global economic recovery, the distribution of vaccines have injected a broad sense of optimism through the global investing community. Still, a broad recovery remains far from certain, with vaccine distribution hurdles posing a potentially significant risk to an already fragile global economy.

Europe is one area already facing problems as governments struggle to coordinate and secure adequate vaccine supplies. Tomas Dvorak, an economist at Oxford Economics, told the New York Times that, “There is definitely a risk that vaccine distribution continues to be disappointing.” The Eurozone faces a double-dip recession after troubling economic data points to a second consecutive quarter of economic contraction.

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