U.S. West Texas Intermediate and Brent crude oil futures closed slightly lower on Wednesday as traders squared positions ahead of Thursday’s U.S. bank holiday. Volume was light and this trend could carry over into Friday’s trade which traditionally is another below-average volume session. This opens the door for the possibility of heightened volatility since most of the major players are not likely to return to the market until early next week.
On Wednesday, January WTI crude oil futures settled at $78.39, down $0.11 or -0.14%. February Brent crude oil futures finished at $81.05, down $0.28 or -0.35%).
The fundamentals are both bullish and bearish at this time, but at least over the short-run, traders are leaning toward the bullish side.
Helping to keep a lid on prices so far this week has been the coordinated release of crude oil from the Strategic Petroleum Reserves (SPR) of the United States and several other major oil consuming countries. Renewed concerns over a new wave of COVID-19 infections in Europe and renewed restrictions in Austria also weighed on prices.
Helping to underpin prices were short-sellers covering positions after the coordinated release of crude oil came in well below expectations. Furthermore, some traders believe that if pushed, OPEC and its allies will agree to reduce daily output in the upcoming months in order to offset the additional oil expected to hit the market.
In other news, this week’s U.S. Energy Information Administration (EIA) weekly inventories report had little impact on prices. The EIA’s report showed gasoline and distillate stockpiles fell more than expected, while crude stocks rose.
Ahead of Friday’s New York opening, the focus for traders is likely to be on OPEC+’s response to the release of crude oil from the SPR, demand destruction from the new COVID-related restrictions in Europe and the possibility of a supply glut during the first quarter of 2022.
OPEC expects the U.S. release to swell a surplus in oil markets by 1.1 million barrels per day (bpd), a source from the group said. On paper this sounds bearish, but OPEC+ still has time to offset the move. Nonetheless, the news is bearish when combined with the possibility of demand destruction in Europe.
The volume in the crude oil market is thin with many of the major players taking an extended weekend so don’t be surprised by exaggerated moves.
The ball is definitely in OPEC+’s court since they have been controlling the supply for over a year. They still have the power to offset some of the releases and we know from previous comments that they have made contingency plans for a possible new wave of COVID-19 cases.
For a look at all of today’s economic events, check out our economic calendar.
This article was originally posted on FX Empire