Oil dropped on weak demand

Oil dropped on weak demand

2021-01-22 • Updated

Why did oil dip?

Long story short, oil fell below $52.00 because investors expect a weaker oil demand amid rising Covid-19 infections and new lockdowns. Besides, the overall risk-off market sentiment drove the safe-haven US dollar higher and thereby lowered the appeal of commodities priced in dollars.

On the virus front, Hong Kong pledged for the first time to lock down tens of thousands of citizens to control the virus spread. The new wave of restrictions in China will curb oil demand in the world's biggest oil importer.

However, we must admit that while oil has been dipping this week, it has been still trading close to the highest levels in almost a year. Expectations for a big stimulus package from Biden will support the risk-on sentiment in the near term. Besides, Saudi Arabia’s output cuts will help to avoid oversupply.

What’s next?

Crude oil inventories at 18:00 MT time will impact oil prices. The better-than-expected reading will drive the commodity up, the worse-than-expected – down. The forecast is the drop by 1.2 million barrels.

Technical tips

WTI oil has approached the support of $51.60, which it has failed to cross a few times. Elsewhere, the price moved below the lower line of Bollinger Bands, signaling the soon reverse to the upside. The move above the 50-period moving average of $52.70 will push the price higher to $53.80. On the flip side, if it drops below $51.60, the way down to the next support of $51.00 will be open.

To trade WT oil with FBS you need WTI-21H, which expires on February 19.

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