04.02.202112:56 Forex Analysis & Reviews: Oil extends its rally

Oil settles higher in early trading today. Yesterday, it reached its highest level for the last year. Today, the upward trend continues. Bullish market sentiment is associated with the statement of the Joint Ministerial Monitoring Committee, which indicates that it is necessary to achieve a balance in the oil market as soon as possible. Otherwise, the situation may get completely out of control and become irrevocable. At the same time, the countries that have signed an agreement to cut crude oil production need to make every effort to stabilize the shattered market. According to the preliminary data from the Joint Ministerial Monitoring Committee, demand for crude oil will remain very limited in the short term. However, mass vaccination against COVID-19 will help to ensure that it gradually increases to its pre-crisis levels. Thus, the dynamics in the oil market is likely to be positive in the medium and long term.

In addition, the willingness of particular countries to cut their production even more during the crisis period has a positive effect on the market. In particular, Saudi Arabia announced it would make additional, voluntary oil output cuts of 1 million barrels per day (bpd) in February and March this year, giving good enough support for the market and increasing investor sentiment.

Today, Saudi Arabia performs the role of a leader and coordinator in reducing oil production and maintaining market balance. It calls on the rest of OPEC countries to follow its lead and make additional output cuts for some time. Thus, Saudi Arabia is a locomotive in the struggle to increase demand for crude oil. Right after Saudia Arabia had pledged to voluntarily cut oil production, market participants became more active in the market.

Nevertheless, there is still a great number of negative factors. Therefore, the current rise cannot be considered a stable upward trend yet. A correction is quite possible. However, it is unlikely to be too deep.

The commodity market is also supported by the news about a reduction in commercial oil reserves in the United States. Moreover, the decrease came quite unexpected in the current environment. Therefore, it turned out to be pleasant for investors. According to an official report from the Department of Energy, crude inventories in the US dropped by 994 thousand barrels in the week ended January 29. They now amount to 475.66 million barrels. However, these figures did not coincide with the preliminary forecasts of experts who expected a possible reduction by 2.3-2.4 million barrels. Notably, Cushing's crude inventories also fell by 1.5 million barrels.

The price of Brent crude oil futures contracts for April delivery on the London trading floor rose by 0.44%, or $0.26, to $58.72 a barrel this morning. Thus, oil came close to the next strategically important level of $60 a barrel. The trading session on Wednesday also ended in the green zone: the price gained 1.7%, or $1, to $58.46 per barrel, the highest level recorded in the past year.

The price of WTI futures contracts on the electronic trading floor in New York is also rising today. The price has already increased by 0.56%, or $0.3, to $56 per barrel. Wednesday's trading was also successful: the session ended with an increase by 1.7%, or $0.93, to $55.69 per barrel, the highest value since last January.