Is it time to correct the oil markets?


Crude Oil Price Rose highest since early spring after the FDA gave the green light to the Pfizer-BioNTech Covid-19 vaccine yesterday, with government officials saying several hundred vaccination sites across the country will be supplied with vaccines by tomorrow. But traders – who bought oil and fuel futures with renewed eagerness in recent weeks – are now bracing for a market correction. Hedge fund traders slow down purchases of crude oil and derivatives contracts, Reuters’ John Kemp he told me in his weekly column, noting that this is the fifth week in a row that traders buy with a voracious appetite.

This appetite will be difficult to maintain, however, even after the start of vaccinations in the United States, for two main reasons: the time it will take to vaccinate the population and the oil fundamentals.

Regulatory approval of the Pfizer-BioNTech vaccine for the United States was a major step in an upward direction for oil, but it was the first in a long series. Challenges remain regarding both availability and logistics. CNN reported yesterday, when the first medical workers were vaccinated on Monday, it would take months for most Americans to get vaccinated.

The federal government purchased 100 million doses of the Pfizer vaccine earlier this year, which means 50 million people will be vaccinated since it is a two-dose vaccine. Pfizer now has he told me it would not be able to supply additional quantities until the middle of next year.

In short, it will be a while before things get back to normal.

Europe is also in an uncertain position with vaccinations. Governments are reluctant to make vaccination against Covid-19 mandatory, but there is growing public distrust of Covid-19 vaccines, which can undermine efforts to achieve collective immunity through vaccination.

Then there is the issue of oil supply and demand which could take off the wheels of this latest price hike. OPEC is preparing to start pumping half a million more barrels per day from January. The United States is already pumping more, as is Libya, which produced 1.25 million bpd earlier this month. Related: Goldman Turns Up On Oil: Sees $ 65 From Brent In 2021

At the same time, OPEC yesterday lowered its forecast for oil demand for this year. The cartel now expects demand to have fallen 9.7 million bpd since the start of the year, to an average of 89.99 million bpd. The demand projection for 2021 has also been revised downwards. OPEC now expects demand for oil in 2021 to average 95.89 million bpd, which would be a solid improvement over 2020 but still 410,000 bpd below previous screenings.

Then there is Iran, which said it last week expected will export 2.3 million bpd of oil next year, confident it can strike a deal with the Biden administration over sanctions that are currently stifling its oil exports. A deal isn’t exactly certain: While Biden has signaled he is ready to negotiate, Iran has in turn signaled that it will not be the first to make concessions. In addition, the US energy industry does not expect another drop in prices and could put some pressure on the president-elect.

At the same time, Asia’s recovery from the pandemic is certainly optimistic for oil, as is Europe’s exit from the second round of lockdowns. According to a recent Bloomberg report, fuel stocks are regularly depleted, with India, China and Japan reporting a rebound in gasoline demand. For many analysts, the rebound is only a matter of time, and this time appears to be next year, putting upward pressure on prices despite the challenges.

“Oil is the cheapest of all reflationary assets,” said Amrita Sen of Energy Aspects, who spoke with Bloomberg. “With the slow roll-out of vaccines, we expect investors to start to return to the oil sector and prices to continue to strengthen.”

“The price momentum has slowed noticeably over the past two weeks and while new or unexpected bullish headlines may be needed to move the complex forward into new high territories, we will also note a market that appears to have developed immunity. to bearish headlines that normally slap the complex, ”another analyst, Jim Ritterbusch of Ritterbusch Associates, Told Reuters.

The clouds above the oil, in other words, are starting to dissipate. It may take a while for them to fully clear themselves, but the demand is on the mend and ultimately is the biggest factor right now.

By Irina Slav for OilUSD

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