Volatility in stock markets could set the tone for crude oil prices this week, with further support coming from the steady drain on commercial inventories of petroleum and petroleum products, analysts said.
Crude oil prices ended last week on a high note, backed by a 9.9-million-barrel draw of commercial crude oil inventories in the United States. That, according to the Energy Information Administration, was the largest draw since July and brought stockpiles down to their lowest level since March.
On the week, the price for Brent crude, the global benchmark, was up nearly 1 percent to finish Friday at $55.88 per barrel.
Data on tap for the week will provide the market with a clue on emerging demand in the latter stages of the pandemic. The EIA releases its market outlook for 2021 on Tuesday and parties to the OPEC-led production curtailments review conditions later in the week.
“The light at the end of the tunnel is visible as inventories keep falling, but (OPEC+) will reiterate that it needs to be vigilant and proactive and be prepared to act, when necessary to the requirements of the market,” Giovanni Staunovo, a commodities analyst at Swiss investment bank UBS said.
One wild card is Libya, Staunovo said. Guards protecting the nation’s oil installations threatened to strike over outstanding salary payments, though tensions eased during the weekend. The United Nations, meanwhile, backed a list of candidates for a transitional government ahead of national elections this year, a development that could spark political violence once again in the country.
“Can you lose large production quantities in a short-time period in the US?,” Staunovo added. “In Libya, that is currently still possible.”
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Tamas Varga, an analyst at London oil broker PVM, said he was expecting a contagion effect for commodities from the volatility triggered by retail investors driving up stocks such as GameStop and movie theater chain AMC Entertainment (AMC) through online forums on websites such as Reddit.
“Stock markets will probably set the tone for oil prices next week," he said. "Ultimately, I believe, the equity turmoil will recede, stocks will stabilize, and oil will remain steady, too."
Gasoline prices are close to where they were a year ago, shortly before the pandemic hit the United States, noted Matthew Kohlman, an associate editorial director for S&P Global Platts in Houston, a sign that demand for petroleum products is recovering.
“Gasoline supply has not returned as fast as demand," he said, "even though demand has not returned to pre-pandemic levels.'
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February 01, 2021 at 07:10PM
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