0253 GMT: Crude oil futures were rangebound during mid-morning trade in Asia Jan. 29 as the OPEC+ production cuts paring back the global supply glut cushioned the impact of depressed demand due to ongoing coronavirus concerns.
At 10:53 am Singapore time (0253 GMT), the ICE Brent March contract was up 5 cents/b (0.09%) from the Jan. 28 settle at $55.58/b, while the March NYMEX light sweet crude contract was down 7 cents/b (0.13%) at $52.27/b.
OPEC+ in early January announced production cuts going into the first quarter of 2021 aimed at reducing the mismatch between excess crude oil supply in the market and weak energy demand. The production cuts are continuing to be effective in supporting the market, with WTI crude still seen as resilient against any major pullback, said Edward Moya, a senior analyst at OANDA.
Along with crude oil production cuts, stimulus policies in the US and vaccination rollouts are leading the market on a path to slow recovery.
"The promise of brighter days ahead on the back of the three-pronged policy puts of improved vaccination distribution, fiscal and monetary policy backstops will eventually win out," said Stephen Innes, Chief Global Markets Strategist at AXI, in a Jan. 29 note.
However, prolonged weakness in demand due to the pandemic continues to limit the upside potential in the crude oil market, and the demand outlook remains bearish amid fresh coronavirus outbreaks in the US and slow progress in curtailing the spread, even in regions where vaccines are being rolled out.
"The South African variant of the virus has reached the US, raising concerns it could spread quickly and force authorities to reintroduce restrictions," ANZ analysts said in a note Jan. 29.
The short term crude demand outlook remains bearish amid the fresh outbreaks of the new variant in the US and a lack of progress in controlling the virus in Israel, where vaccine distribution has been smooth and efficient, Moya said. "Israel has been the shining example on how to distribute COVID vaccines, but their early success is not delivering a sharp decline in new cases," he said in a note Jan. 29.
Demand in China and Europe continues to falter amid the pandemic, lending fundamental weakness to global markets.
"Chinese road and air travel mobility data are declining sharply into the Chinese New Year holiday due to travel restrictions and a spike in coronavirus infections," Innes said. "Oil investors' worries are coalescing around vaccine availability and rollouts which could lead to protracted lockdowns in Europe are likely the two most damaging feedback loop culprits on the continually revolving carousel of adverse risks for the oil market," he added.
