The rally in oil stocks may be short lived


First, Pfizer and now Moderna have provided a much needed boost to the beleaguered oil industry, with their news of the effectiveness of candidate vaccines on the rise in stocks over the past week.

Pfizer News kicked off the best week ever for energy stocks, CNBC reported, and Moderna’s update marked the start of what could be another good week, especially since came on the same day that OPEC + decided to extend the current oil production cuts by three. more months, until the end of March. But how stable is the rally? This is the question investors should be asking themselves.

It all depends on the prospect that effective vaccines will soon become widely available and that mass vaccination will cause demand for oil to rebound sharply as people start to travel again. But the trial data is very early and based on small samples of trial participants. Pfizer, Moderna and all the other vaccine makers need to collect more data, not just on efficacy, but on security before starting to distribute it on a large scale.

There are also logistical challenges for the rapid distribution of large quantities of coronavirus vaccines. As the Wall Street Journal’s Max Colchester and Drew Hinshaw noted in a recent report, previous large-scale vaccination initiatives have taken years to succeed. They also tended to target specific demographic groups, such as children.

This time, there is a strong sense of urgency, and the goal is to vaccinate as many people as possible, regardless of their age. It means giving people enough doses and then encouraging them to get the vaccine. All of this takes time, and we’re not talking about a few weeks.

So, oil demand will not rebound significantly anytime soon, at least not in Europe and the United States. It is bouncing back in Asia, although more weakly than many expected. And the surge in new cases of Covid-19 in Europe and the United States could possibly offset the optimism over the announcements from Pfizer and Moderna.

And then there are the US elections and the renewable energy agenda to consider, especially in the long term.

“When you think about the fundamental change in the way we get energy, clean energy, the emphasis that a [Joe] Biden administration is likely to put this, I would see this [last week’s oil stocks rally] like a cyclical trade but not a secular trend that I would like to keep as a long-term investor, ” he told me Nancy Tengler, chief investment officer at Laffer Tengler Investments this week, speaks to CNBC.

Related: Oil Markets See Light at End of Tunnel

Indeed, investors are increasingly aware of the sustainability of energy, and this awareness pushes them to reduce or completely eliminate their exposure to oil stocks despite the attraction of stable dividends. These, by the way, have proven to be less stable this year thanks to the crisis, with some supermajors cutting payments due to the rout in oil prices.

Oil stocks have always been in direct relation to economic news. Positive news about the economy, domestic or global, tends to benefit stocks of oil companies, as economic growth has so far always meant improving demand for oil. That might be about to change in the future, however, due to the attention renewables are getting. It will be the demand for energy that grows as economies grow, but not necessarily the demand for oil.

These are trends that unfold more slowly than a market recovery triggered by a vaccine update – as a result, the CEO of Pfizer sold $ 5.6 million in company stock. Oil stocks are currently having some of their best days this year, and there will be more rallies later. The important thing about them is that they are unlikely to be particularly durable, until oil-dependent industries start to recover.

By Irina Slav for OilUSD

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