Oil prices rallied for the second consecutive day on Wednesday as the market expects the incoming US government to “act big” in the next COVID aid package.
As of 9:17 a.m.ET on Wednesday, the inauguration day for President-elect Joe Biden, WTI Crude surged 1.53 percent to $ 53.77, and Brent Crude prices traded above $ 56 a barrel – up 1. 16 percent at $ 56.52, very close to the 11-month high prices hit last week.
The US dollar fell after Treasury Secretary-candidate Janet Yellen told the Senate Treasury Committee on Tuesday that the US should act “big” in the upcoming stimulus package. The weaker dollar makes crude oil cheaper for holders of other currencies, while the general surging market sentiment also sent investors and speculators to riskier assets such as stocks and commodities.
On Wednesday, the market looked beyond short-term oil demand fears, fueled by ongoing blockages in many parts of Europe and now back in parts of China. On Tuesday, Germany extended its lockdown to mid-February.
But market participants looked beyond the first quarter, hoping that a major stimulus package in the US would result in a recovery of the world’s largest economy, and aid packages in other economies will also aid growth, and by extension demand for oil. later this year.
While it lowered oil demand forecasts for Q1 and 2021, the International Energy Agency (IEA) said on Tuesday in its closely-watched Oil Market Report that “much more oil is likely to be needed, given our forecast for a substantial improvement in demand in the second half of the year. “
“The market shrugged off another downgrade in global demand growth from the International Energy Agency, which said renewed lockdowns to contain the pandemic would weigh on consumption during the current quarter,” Saxo Bank said early on Wednesday.
“The market continues to bid for a combination of Saudi production cuts and the prospect of more fiscal stimulus, more mobility and continued monetary easing that will ultimately support demand. The biggest risk in the short term is whether these are fully priced into the current price level, ”say the bank’s analysts.
By Tsvetana Paraskova for Oilprice.com
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