Crude oil has more than made up Tuesday's entire losses with both contracts up more than 6%. Prices jumped after the Suez Canal was blocked by a giant container ship and as German Chancellor Angela Merkel was forced to abandon a 5-day hard lockdown over Easter. This morning’s stronger-than-expected manufacturing and services PMIs from France and Germany provided further relief for risk assets after worries over the latest virus surge in the region had weighed on sentiment at the start of the week. Investors thus priced out some of the risks stemming from weaker demand outlook due to the lockdowns at the Eurozone’s largest economy. But more to the point, it was concerns that the Suez Canal blockage would restrict supply.
Still, I reckon this issue is only going to provide a temporary boost for prices. While I think demand is going to improve further as more economies ease travel restrictions in the coming months, the impact of this will be offset by rising oil supply. The OPEC+ will be easing supply restrictions slowly, while US shale production is likely to ramp up due to the attractive oil prices again. Therefore, I can’t see oil prices rising significantly further. I think Brent will struggle to stay above $70 and reckon WTI is going to average around $60 per barrel in 2021.
But as mentioned previously this week, the oil market may have already topped out, given the recent bearish price action. Keep an eye on Brent as it tests key support around $64.50:
Source: ThinkMarkets and TradingView.com
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