ENB Publishers Note: Incoming US Treasury Sec. Janet Yellen signals more spending to prop up markets with drives traders to the bull-side on oil.
Singapore — 0306 GMT: Crude oil futures rose in the mid-morning trade in Asia Jan. 20, as stimulus expectations continued to provide a tailwind to the oil market, even as fresh coronavirus outbreak in Asia threatened to derail crude’s demand recovery.
At 11:06 am Singapore time (0306 GMT), the ICE Brent March contract was up 42 cents/b (0.75%) from the Jan. 19 settle to $56.32/b, while the February NYMEX light sweet crude contract was up 38 cents/b (0.72%) to $53.36/b. The Brent marker had jumped 2.10% on Jan. 19 to settle at $55.90/b, with the NYMEX light sweet crude marker also rising 1.18% to $52.98/b.
The upward trajectory in the market comes after US Treasury Secretary nominee Janet Yellen, in her Senate confirmation meeting on Jan. 19, underscored the need to “act big” on the next coronavirus relief package. Talking to US lawmakers, Yellen reasoned that given the low interest rates, the benefits derived from such stimulus measures will outweigh the costs of a higher debt burden.
“Following Yellen’s comment, the markets is currently looking towards the broader picture painted by the $1.9 trillion package that the Biden administration had proposed,” David Lennox, resource analyst at Fat Prophets, told S&P Global Platts on Jan. 20. “We have seen what such spending programmes have done in the past as far as oil demand is concerned, and traders are just gearing up for the possibility of increased oil demand should a package be passed.”
The promise of a stimulus-driven boost in oil demand comes at a time when oil’s demand outlook seems increasingly uncertain. Three new highly contagious strains of the coronavirus from the UK, South Africa and Brazil are threatening tougher and longer restrictions. Already fresh coronavirus outbreaks in Asia have forced some cities to retreat into lockdowns, sapping oil demand.
“The market remains concerned about oil demand in the short term as the pandemic impacts travel…In China, the government called on citizens not to travel over the Lunar New Year holidays, one of the busiest times of the year,” said ANZ analysts in a Jan. 20 note.
As ANZ analysts noted, in light of the escalation of the pandemic, the International Energy Agency, on Jan. 19, had revised its oil demand forecast by 600,000 b/d in the first quarter of 2021, and by 300,000 b/d for the year as a whole.
“It will take more time for oil demand to recover fully as renewed lockdowns in a number of countries weigh on fuel sales,” said the IEA.
Meanwhile, analysts surveyed by Platts were bullish in their forecast for the US commercial crude drawdown in the week ended Jan. 15, as they expected inventories to fall by 2.5 million barrels to around 479.7 million barrels. The expected draw would mark the sixth consecutive week of falling crude stocks and leave inventories less than 8% above the five-year average of US Energy Information Administration data, the narrowest surplus since late-November.
Comprehensive data on weekly inventory reports by the American Petroleum Institute and the US Energy Information Administration will be released on Jan. 20 and Jan. 22, respectively.
