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Crude oil prices registered the first weekly drop after the previous seven consecutive weekly gains. On the weekly closing, the Brent crude price declined to $51.29 per barrel. The West Texas Intermediate (WTI) crude price also declined, to $48.23 per barrel.
Though oil prices registered a weekly decline, Brent crude still held above the important physiological level of $50 per barrel, surpassing the seven-month-long narrow range around $40, which was the Brent crude price average for 2020.
It is possible that crude oil price movement has run into a long overdue correction after seven weekly gains. However, the new coronavirus strain is prompting demand worries amid new travel restrictions that will further hit oil demand.
Brent crude has held above the $50 barrier since Dec. 10, when the upward price momentum was driven by improving sentiments amid vaccination news while the market fundamentals remained heavily bearish. This might not look too good for oil markets going into the new year, but if the world economies pick up, oil prices will pick up as well and investors will disregard bearish fundamentals.
This means that holding above $50 will be a good start for 2021. If Brent crude holds around $50 per barrel, this will incentivize investors in all the commodity markets to buy again because economies will pick up.
COVID-19 lockdown fears amplified demand worries and provided a weak short-term demand outlook after tightened restrictions in the US and Europe outweighed the hopes of a vaccine-induced boost in economic growth and energy demand. This forced oil prices into a downward momentum, with near-term demand concerns trumping hopes for the demand outlook.
On the physical market side, crude oil transactions eased ahead of the year-end holidays as Asian refiners have eased purchases after an earlier-than-usual buying spree in November. This came as a result of lower refining throughput for Chinese refiners in December as refiners cut the monthly run rate to 78 percent due to state-run and independent refiners posting lower run rates because of maintenance works toward the year-end.
When the market opens after the year-end holidays, it will be very interesting to see how speculators will act, and if they will continue to add bullish bets to the oil futures market, as they were the most optimistic in the past weeks when Brent crude eventually moved out of the long-awaited narrow range around $40 per barrel to breach the $50 important barrier for two weeks.