28.01.202110:33 Forex Analysis & Reviews: Oil market is pressured by negative factors

Crude oil prices were again in the red zone on Thursday morning. Popular brands of black gold sank against the background of a negative forecast for the level of demand. According to experts, the demand for raw materials will soon undergo a fairly strong negative correction, which is still caused by the coronavirus pandemic. The introduction of tougher restrictive measures to contain the rapid spread of the virus puts enormous pressure on demand, which is now in danger of recovering to its previous, pre-crisis level.

The negative forecasts for the crude oil market also almost negate the efforts of government agencies in aiming to maintain economic stability. Even the support from the statistical data released last night and the reduction in the level of crude oil reserves in the US could not have a significant impact on the overall negative picture, which is already quite firmly established in the market.

The price of futures contracts for Brent crude oil for delivery in March on the trading floor in London fell 0.43% or $0.24, to $55.57 per barrel. On Wednesday, Brent futures also dropped 0.2% or $0.1, to $55.81 per barrel.

The price of WTI light crude oil futures contracts for March delivery on the electronic trading floor in New York sank 0.36% or $0.19, to $52.66 per barrel. On Wednesday, an increase in the value of contracts by 0.5% or $0.24, was recorded, which sent the final price at $52.85 per barrel.

To date, the demand for oil raw materials is the most painful topic for the world market. There are practically no prospects for its growth, but there are a huge number of pressure factors, and most of them are of a long-term nature. In particular, we should expect a significant reduction in the consumption of black gold from China, which is facing a new wave of coronavirus infection. The government of the country is already actively calling on citizens to postpone or even refuse to travel during the celebration of the Lunar New Year. Authorities in other countries have no choice but to impose strict restrictive measures (including on movement within the state and even in a locality).

Another signal that demand will continue its negative movement was the sharp decline in traffic in Los Angeles, which was recorded over the past month. The reason for this was the quarantine measures in California. The state authorities were forced to impose such measures amid the rapid growth in the infection, and the lack of the ability to carry out vaccination in full and previously planned volume.

According to recent data taken from the official weekly report of the US Department of Energy, the level of crude oil reserves in the country dipped 9.91 million barrels. At the same time, gasoline inventories, on the contrary, were higher by 2.47 million barrels, and distillates, in turn, sank by 815,000 barrels. The statistics look positive, but the external situation is such that there is no confidence that it will not change dramatically next week.

Recall that, experts' preliminary data, estimated the reduction in oil reserves on average by 1.7 million barrels. But the level of gasoline, according to their assumptions, should have risen by 1.2 million barrels. The forecast for distillates almost coincided with the real data.