Bullish Market Moves Energy Prices Higher
January 11, 2021
The bullish energy market continued last week as price rose to their highest level in almost a year and gained about 8% on the week. The big news from last week was the surprise Saudi Arabian announcement that they would cut 1 million barrels per day in February and March to try and bring supply and demand into balance. The reason that cuts are needed is the rising COVID cases that is cutting into demand and the balance between cuts and new restrictions going into place and the roll out of the vaccines will continue to be the factors that impact where prices go. Current market sentiment is optimistic that demand will improve and that supplies are getting tighter as we move toward the back half of 2021 and with this outlook prices continue to move higher and price in this outlook.
The new surge in COVID-19 cases in Europe have brought more restrictions. Today the United Kingdom imposed new national lockdown that is estimated to last until mid-February. German extended a strict lockdown until the end of January. China has also introduced new restrictions near Beijing. Energy prices have continued to go up despite all these reports about demand being impacted as it appears traders look beyond all this to later this year when they see a better situation. The energy market is overdone to the upside and early estimates are calling the DOW lower at the open and energy prices in early trading are off slightly. The current question is whether this market is willing to have a near term corrective pullback or will it just trade sideways for a bit before continuing the uptrend. It seems more market participants are cautious but that doesn’t mean that this market cannot continue higher.
The market also expects that more stimulus in on the way once President elect Biden gets into office. This influx of money will be a welcome event and seen to boost economic activity and supportive to prices.
Baker Hughes reported that oil rigs were up 8 to a total of 275, this is the highest total for oil rigs since May. Last year at this time there were 659 oil rigs.
The US dollar is also trading higher which is helping to put some downside pressure on energy prices.
The US job number on Friday was not very good at 140,000 jobs were lost in December when the expectation was for there to be an increase of 75,000 jobs by economist.