Crude and Brent oil price outlook for January

Written by: Michael Harris
December 20, 2020
  • The US dollar is widely expected to remain under pressure in the first half of the next year
  • Higher demand from China for oil products will also support prices
  • Crude oil prices closed above the 100-WMA for the first time in a year

Among other factors and, movements in the oil price market are likely to depend on the U.S. dollar. Given that analysts expect the greenback to remain under pressure in the first half of the next year, oil prices are likely to move in the opposite direction. 

Fundamental analysis: A weaker dollar expected in 2021

Analysts expect movements in the U.S. dollar to be among several factors that will influence prices of crude and brent oil in 2021. 

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“The only way to get commodities moving in an inflationary, buying power way is a weaker dollar,” said Doug King, chief of RCMA’s Merchant Commodity Fund.

Majority of analysts surveyed by Reuters believe the dollar will keep falling until the mid-2021.

“You can’t have such an over-valued dollar, it’s as simple as that. The dollar had become and still is significantly over-valued on pretty much any measure that I can think of as a result of monetary policy divergence, and convergence takes away all reasons for that,” said Kit Juckes, head Forex strategist at Societe Generale.

“The market reacting to that monetary policy adjustment is accelerating because that seems to bring reasons to look for better investment opportunities abroad.”

He also believes that the greenback will weaken further as we head into 2021. Other fundamental factors, such as a surge in demand in China, will also help oil prices to gain.

Analysts from Pavilion Global Markets see higher demand from China for oil, soybeans, and copper as a positive development for prices of these commodities.

“It isn’t just copper either; the prices of various industrial metals, from lead and iron ore to nickel and zinc, are rising,” analysts said.

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Brent oil price outlook

Brent oil prices are trading at the highest level since the pandemic-driven selloff in March. The price action is now approaching the 100-WMA at $53.59, which is a long-term target for the buyers as prices recover. 

Brent oil weekly chart (TradingView)

If broke, the next target on the upside is a confluence of resistance lines near the $60 mark. On the other side, the $50 handle is now expected to support brent oil prices. 

Crude oil price outlook

Crude oil prices closed above the 100-WMA for the first time in a year. A close above this technical indicator at $48.34 is likely to generate more bullishness in crude oil prices as we head into 2021. 

Crude oil weekly chart (TradingView)

Oil traders are now likely to target a test of the long-term resistance line at $51.00, followed by the 200-WMA at $53.17. This confluence of resistance lines will likely yield a series of attempts to break higher. 

Summary

A weaker dollar in 2021 is likely to open the door for higher oil prices, as analysts widely expect the greenback to struggle next year.