The price of crude oil is climbing up for the fifth week in a row, which translates into the best run since April 2020. Oil might be supported by a cheap dollar and the OPEC+ agreement.
On Thursday a compromise was reached at the postponed meeting of the oil alliance representatives. Admittedly, the market consensus assumed that OPEC+ countries would extend the current production cut limit of 7.7 million barrels per day for the entire first quarter of 2021. This was not the case, but the current agreement had no negative impact on prices.
Cartel wins on both sides
The cartel and allies decided to reduce production limits from January to 7.2 million barrels per day. In other words, production will increase by 500,000 barrels a day from the new year, which is less than the assumed increase of 1.9 million barrels. The OPEC+ countries are to meet every month from the new year to flexibly modify their production limits, Reuters agency said.
Yesterday's decision shows that the countries of the alliance can cooperate and agree to adjust production to the rapidly changing market conditions and expectations for the increase in demand for oil. OPEC countries managed to push through more production and raise oil prices, this seems to be a double victory for the cartel and allies. These countries have also found themselves in a difficult economic situation, and with rising oil prices and increased supply they could try to repair their budgets. Today, in the morning, a barrel of WTI oil cost USD 46.50 and was the highest price since early March.
America is laboriously restoring employment
Today, the first Friday of the month, publication of data from the American labor market will take place. According to the consensus, 469 thousand jobs in non-agricultural sectors were added in November. In October, 638 thousand new jobs were added. Therefore, it seems that employment in the USA could have been growing at the slowest rate for six months, and in December and January even worse data is expected due to worsening statistics of the epidemic.
In total, the U.S. lost over 22 million jobs due to the epidemic. Only just over half of them were recovered. Therefore, it may take more than a year in the United States to return to the state of employment before the epidemic. The fiscal package prepared by American politicians and the rapid introduction of mass vaccinations may help.
Will the turn of the year heal the dollar?
On the currency market we may still observe the weakness of the American currency, which could be translated into the continuation of growth trends on currency pairs: EUR/USD, AUD/USD or NZD/USD. However, sentiment to the dollar may change in late 2020 or early 2021.
The market is waiting for what the European Central Bank has to say about the strong euro. What is more, recent COT reports have indicated that there is little willingness to sell the dollar at such low rates.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
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