Crude oil price is trading below the crucial level of $80 as the market reacts to the new COVID-19 wave in Europe. News that Japan may release oil from its reserves has also dampened the bull run. The once steady support zone of $80 is now a key resistance level. Brent futures ended Friday’s session in the oversold territory at $78.44.
Supply outlook
Crude oil price has dropped below the crucial support level of $80 as a reaction to the probable release of reserves in Japan and the US. In the recent past, some major customers have pressured OPEC to increase production as a way of curbing the soaring oil prices. However, as indicated in its November meeting, the alliance decided to carry its output cuts into December.
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OPEC expects a decline in global oil demand in Q4’21. To avoid oversupplying the market, it intends to increase production by a modest 400,000 in the coming month. Interestingly, some of the consumers are fighting back by contemplating releasing oil from their reserves.
On Saturday, the Kyodo news agency stated the Japanese government is considering the approach in an attempt to control the surging oil prices. It is the second nation, after the US, to highlight such plans. Investors are concerned that the move would ease the uptrend that has been founded on a positive demand outlook and low supply.
Rising COVID-19 cases
The new wave of COVID-19 that has hit Europe has further dampened oil’s bull run. Netherlands hit new record highs for three consecutive days earlier in the week. As at Friday, there were over 20,000 new cases with a 7-day average of 18,659.
Data from the Johns Hopkins University further shows that Germany hit a new record on Thursday with over 65,000 new cases. However, health officials have indicated the actual figure is about two to three times the recorded number. France, Belgium, and the United Kingdom have also recorded a surge in coronavirus cases.
As a reaction to the new wave of infections, Austria and the Netherlands have enacted partial lockdowns. At the same time, other countries within the region are desperate to avoid stringent measures that would result in the economic damage witnessed in 2020.
Belgium has reintroduced the work from home rule in addition to the usage of masks indoors. Notably, Germany is considering following the route taken by Austria. These restrictions are likely to impact travel during the upcoming holiday season; an aspect that has exerted pressure on crude oil price.
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