Oil Super Cycle In Motion?

After witnessing the black swan event of 2020, seeing oil prices fall below $0.00, we have seen a massive rebound for the liquid commodity. Last year, we saw a massive shock to supply & demand as we had too much oil and too little demand with global lockdowns being enforced. In 2021, we may see another supply & demand shock, but what will be the catalysts and why will we see a complete opposite from 2020?

With optimism around the economy reopening mounting, we are anticipating massive demand to come back to the oil markets. The lack of demand and overflow of supply was the downfall of oil last year. This year, we see the polar opposite as we see demand pick up and supply gets tapered.

Last week the OPEC had announced supply cuts in April at a time when the markets are signalling further supply is needed as prices climb. This lack of supply, with pent up demand is pushing pries higher in the short term. Although we see a race for a green economy by 2030/2035, oil is still essential and will not fall away. This factor is something to be mindful of as the global energy infrastructure will change and demand for oil will drop in the longer term.

DXY DAILY TIMEFRAME

Analysing the DXY, we are seeing resistance form around levels seen back in September. There is still further room for upside as we see a resurgence in the Dollar. This can potentially hold commodity prices lower, should we see upside in the DXY. Commodity prices also prefer lower rates so the inflation outlook is also extremely important to watch.

The upcoming stimulus will have a positive effect on the commodity market as we see asset prices inflate and rates are suppressed. The bill has been passed in Senate and we now await Biden to officially sign the bill.

USDCAD DAILY & USOIL 4HR

Looking at USDCAD to the left, we can see price has been trending to the downside long term as oil rallies higher. This is because oil makes up a large % of Canada’s GDP. In the more recent weeks, we have seen the Dollar stage a rebound, however price has begun to consolidate throwing wicks on either end of the daily range, expressing indecision.

In this time, we have seen Oil continue it’s ascent higher. There is a potential a high has been formed, although there is further upside on the DXY. Any push higher, the psychological level of 1.28000 will be the next key level in focus. With wicks being thrown to the upside on most occasions, we may be preparing for a downside leg on USDCAD as Oil holds support to potentially go higher. Should oil prices drop, all eyes will be on the $60-$62 region for further buying pressure.

Today, we have the release of US Crude Oil Inventories. This will have a direct impact on the charts displayed above. The previous number came in with excessive supply increases around 21.6mln barrels added. The forecasts for today’s number is 3.0mln, any figure falling far out of line from these expectations will move the market.

Aside from the fundamental and technical picture, there were also attacks on the worlds largest crude oil terminal situated in Saudi Arabia. This Ras Tanura Refinery is capable of exporting 6.5mln barrels a day – 7% of oil’s demand. This attack is the most serious offence seen since September 2019. With tension mounting, it will be important to be mindful of any developments in this story.

We also recently saw a vessel carrying 130 tonnes of oil running aground in Mauritius. This is not only an environmental disaster, but a shock to supply/demand. Divers stated there appears to be no major leak in the hull, but this delay in supply delivery will have an impact on business.

JP Morgan has raised expectations on oil pricing, stating we should see global consumption back at pre-2019 levels by the first half of 2022. With all these factors to consider, volatility is expected in the markets. US crude oil inventories will be an important figure to keep your eyes on at 3:30pm. As always, exercise risk management and to stay up to date with what is happening in the markets, subscribe to our blog for instant updates to your email. Have a great trading week further !

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