The price of crude oil is expected to recover this week, largely due to US President-elect Joe Biden’s proposed trillions of dollars stimulus package to boost the economy.
In addition, Saudi Arabia’s pledge to cut oil production, the success of Covid-19 vaccine rollouts and the rise of consumer prices in China last month are all good signs for a recovery in the price of oil.
According to Reuters, the price of crude oil rallied late Friday after Biden proposed the stimulus package to counter the economic toll from the coronavirus outbreak.
It added to a weekly gain of $47.13 to $52.70 a barrel underpinned by the Saudi pledge for deeper output cuts by one million barrels per day in February and March.
The price of oil has increased from $33.60 to a recent high of $52.70. This rise of around 45 per cent since early November came after a series of Covid-19 vaccine breakthroughs raised optimism for a sustained rebound in fuel consumption, despite the rollout of jabs expected to take some time.
The recovery in energy demand hinges largely on the success of the distribution of shots, and complications in various vaccines programmes are affecting the trajectory of the rebound.
The speed, or lack thereof, of the vaccine rollout will play a key role in determining how quickly energy demand will rally in the coming months.
It will be interesting to see how high oil prices will rise without a substantial increase in demand and, if they do continue their upward path, just how long the Saudis will maintain their output cuts.
Crude might be looking for a fresh direction after last week’s strong gains. Markets are still positive on the crude price and Biden’s promise to lay out a fresh stimulus proposal last Thursday may keep sentiment buoyant.
Biden urged new assistance, including boosting stimulus cheques to $2,000 after an unexpectedly poor December jobs report that reflected a plunge in restaurant employment.
Meanwhile, China’s consumer prices rose last month after briefly declining in November, while factory gate deflation eased further, providing more evidence of the country’s economic recovery.
For trade recommendations this week, investors should buy crude oil at $51 to $52 a barrel and take profit at $54.50, with the stop-loss at $49.