What are the fundamentals of oil now?
Oil prices ended higher on Thursday after three choppy sessions, following the release of the first estimate of US GDP growth in the fourth quarter, which was rather reassuring for demand:
The Brent and WTI benchmarks rose by more than 1.5% and 1%, respectively, as investors Investors welcomed the 2.9% annualized pace of growth in the world's largest economy from October to December, a stronger than expected figure.
So, overall, crude oil fundamentals are good: the dollar is weakening, China's economy is coming back from its "casedemic" restrictive policies, sales of US strategic petroleum reserves are stopping, and, even if the United States is heading towards a recession, the market seems to have anticipated.
Why does a weakening dollar help push commodity prices up?
Because black gold prices are denominated in dollars (see petrodollar), a depreciation of the US currency encourages oil purchases, with crude becoming more appealing, particularly to foreign buyers, which would then push up oil demand, and so on.
On the other hand, the only thing the Europeans needed as they were stuck with the natural gas supply difficulties linked to the sanctions and the war in Ukraine was a mild winter, and they got it in the end.
Currently, the main support zone on WTI (March contract) seems to develop around the $80.20-80.60 area, so this is the support level I will be watching before I eventually decide to go long or scalp the tails.
Where do you see oil closing this month? Do you think, like me, that the month will close by making a new 2023 high? Or do you expect a different scenario, maybe?
Have a great weekend!
Sebastien Bischeri,
Oil & Gas Trading Strategist