Forex Analysis & Reviews: 21.01.2021 - Problems overtook the oil...

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21.01.2021 11:02 AM

Problems overtook the oil market: the cost of raw materials began to fall

The rally in the oil market over the past few days appears to have come to an end this morning. The cost of raw materials began to decline immediately after the press received fresh statistics on the level of black gold reserves in the United States of America. It is still difficult for experts to say whether it will be a long-term fall or a short-term correction, since several multidirectional factors are currently affecting raw materials.

The demand for hydrocarbons in 2021 will undergo an even greater correction. The reason for this is not only that stocks of raw materials are rapidly growing but also the difficult epidemiological situation with regard to coronavirus infection exerts tremendous pressure on black gold. Information about the growth of new cases of COVID-19 infection in China is taken seriously. So far, the number of patients there is not too large, but the very fact that the virus has entered the country again, despite all the efforts of the authorities, is already causing concern among investors. In addition, China has already reported cases of the new strain of the virus that first appeared in the UK.

The price of futures contracts for Brent crude oil for delivery in March on the trading floor in London fell 0.25% or $0.14, to $55.94 per barrel. On Wednesday, the trading session ended with growth, which amounted to 0.3% or $0.18, and sent the final price at $56.08 per barrel.

The price of futures contracts for WTI crude oil for delivery in March on the electronic trading floor also sank 0.32% or $0.17, to $53.14 per barrel. Wednesday ended with an increase in value by 0.6% or $0.33, which sent contracts to $53.31 per barrel.

According to official data presented by the American Petroleum Institute (API) on Wednesday, the level of black gold reserves in the US rose 2.56 million barrels at once last week, which came to an end on January 15. The said rise has completely surprised analysts.

Most of the preliminary forecasts of experts boiled down to the fact that one should expect a continuation of the fall in the level of stocks. In particular, analysts interviewed by S&P Global Platts argued that the reduction in black gold reserves will be at least 2.5 million barrels. At the same time, the level of gasoline stocks should have increased by an average of 2.7 million barrels, and distillates should increase by 600,000 barrels.

Today, the US market remains one of the largest retail outlets for raw materials. And the fact that it has never been able to demonstrate a sustained recovery is very saddening for analysts and investors. Demand is still rather restrained, and the introduction of stricter quarantine in the country is putting even more pressure on it.

If we take into account the fact that demand for oil raw materials from China will now also go down amid the aggravation of the situation with coronavirus infection, it becomes clear that problems in the market are accumulating rather quickly. At the same time, hope for mass vaccination, which began late last year, is gradually dwindling, as it did not pay off properly.

Recently, the main lifting mechanism in the hydrocarbon market has been the demand from China, which, contrary to forecasts, has been growing. However, now, on the contrary, it will inevitably begin to decline, which means that oil will lose its fundamental basis for growth. Hopes are growing that Chinese authorities will quickly take control of the situation and the country will not be covered by a new wave of pandemic.

Thus, while there is every reason to believe that the cost of crude oil will be extremely vulnerable. The swing will continue and robust growth is unlikely to return.

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*Disclaimer: The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.