Crude Oil Futures Ended Higher Last Week
WTI and Brent crude oil futures ended higher last week. This was due to the possibility that OPEC and its allies would take steps to stabilize or increase their production cut.
On the other hand, the rise faced limitations from the negative effect of the increase in coronavirus infections. Besides, the final result of the presidential elections in the United States was not yet known.
Last week December WTI futures settled at $37.14, up to $1.35 or +3.77%. January Brent Crude Oil ended at $39.45, up to $1.99 or +5.04%.
Bullish Factors – US crude reserves fall sharply
On Wednesday, the US Energy Information Administration, announced a significant drop in crude oil reserves during the previous week. Largely, it was a result of blocking of production in the Gulf of Mexico due to the presence of a storm. Regarding petroleum, the EIA reported an increase in reserves, while distillate reserves also decreased.
Crude oil reserves, in particular, fell by 8 million barrels during the week ending October 30. That was versus the analysts’ forecasts of an increase of 890,000 barrels. Petroleum reserves increased by 1.5 million barrels, while the Reuters poll pointed to a drop of 871,000 barrels. Distillate reserves, including diesel and heating oil, fell by 1.6 million barrels, compared to expectations of a decline of 2.0 million barrels.
The EIA also reported a drop in crude production of 600,000 barrels per day. Thus, bringing the total to 10.5 million BPD.
Political uncertainty and congressional split weighing the US Dollar
Investors were betting that Democratic candidate Joe Biden would become the next president. But they also believed that the Republicans would maintain control of the Senate. This way, it would be difficult for the Democrats to carry out that great package of financial aid they had promised.
As of Friday’s close, the vote count and trends suggested that Republicans were indeed on track to retain control of the US Senate. Democrats would win a slightly more substantial majority in the House of Representatives.
This result would probably negatively affect the demand for petroleum and distillates in the United States.
The dollar weakened because a smaller-than-expected stimulus package likely means that the Fed will have to inject more monetary aid. If the dollar weakens, foreign demand for US dollar-denominated oil may increase. Still, we must also bear in mind that if COVID-19 cases continue to rise in Europe, demand will decrease.
Bearish Factors – Europe faces demand concerns
One of the factors pushing the market down was concern about the destruction of demand caused by the rapid increase in COVID-19 cases around the world. On Thursday, economic projections for the EU worsened.
Besides, the vice president of the ECB said on Friday that growth in the Eurozone would probably be negative in the fourth quarter due to the restrictions on economic activity.
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