The technical picture in the oil market has deteriorated substantially during the second half of the year
Oil prices briefly peaked above $86 a barrel earlier in the week before retreating amid profit-taking. After derailing the $82 figure, Brent crude bounced marginally, trying to minimize weekly losses following two positive weeks in a row. The futures have settled around $84 on Friday, adding nearly 0.6% on the day so far.
Earlier this week, Brent crude failed to preserve gains amid surging COVID-19 cases in China, the world’s second-biggest oil consumer. A spike in infections in China triggered concerns over demand in country. At the same time, Beijing announced major easing of its Covid travel quarantine rules.
In industry news, the Energy Information Administration said that US crude oil inventories rose by 718,000 barrels in the week ended December 23 versus the expected 1.5-million-barrel drop. Distillate stockpiles rose by 300,000 barrels during the week. On the positive side, gasoline stocks fell by 3.1 million barrels, compared with expectations for a 500,000-barrel increase.
Oil markets were also buffeted by expectations of another interest rate hike in the United States. However, the downside pressure looks limited as the dollar stays weak, holding just slightly above June lows registered earlier this month. The USD index failed to regain the 105.00 figure last week, flirting with 104.00 these days.
The technical picture in the oil market has deteriorated substantially during the second half of the year. Furthermore, this month, Brent fell to one-year lows around $75 before regaining the $80 handle last week. Oil prices are likely to stay fragile in the near term, with volatility persisting due to multiple uncertainties globally, including the outlook for demand recovery next year.