Crude oil futures have been rising in recent weeks, defying the usual trend of making profits before the Christmas holidays. WTI was trading at $ 49.20 for Friday’s session with Brent crude trading at $ 52.40, levels that last touched in February before the fall in oil prices.
Naturally, the big question for most traders right now is whether this rally has the legs to continue into the holiday season and beyond.
On a purely technical basis, crude has been hitting highs on weekly charts since April. The last peak came on Dec. 10, and the next was expected around the $ 50 psychological level in NYMEX futures. Upcoming technical resistance levels will be at the mid-February high of $ 54.50, as well as the 2020 high of $ 65.65.
The reference point for oil and gas, SPDR fund of the selected energy sector (XLE), has gained 12% in the last 30 days compared to 4% S&P 500.
Below are three key reasons why we maintain an upward trend in the oil market.
# 1. Covid-19 vaccines One of the reasons why the energy sector has become the best performer in recent weeks is a rain of possible vaccines against Covid-19 be available.
The launch of the file Pfizer-BioNTech The BNT162b2 mRNA-based vaccine was launched last week in the United States. A few days ago, the vaccine hit long-term care centers Walgreens seeking to expand the program to nearly 3 million residents and staff of 35,000 long-term care centers. Bye now, only two people Severe allergic reactions to the vaccine have been reported, both middle-aged health professionals. However, health experts have sent assurances that the vaccine is still safe for the general public. Related: increase in oil and gas platforms for the fifth week in a row
The vaccination trajectory so far suggests that it is likely that the majority of the American public received it in late February, better than a third of the target population previously held by Dr. Moncef Slaoui, head of Operation Warp Speed. . projected.
Meanwhile, the EU plans to launch its vaccination program on December 27, 2020. A few days ago, Moderna Inc. announced that the European Commission had exercised its option to purchase an additional 80 million from its COVID-19 vaccine candidate, expanding the company’s total order commitment to 160 million doses.
The initial success of the launch programs has instilled quite optimism in the oil markets even with conservatives BP Plc (NYSE: BP) is backtracking on its first projections that we could have surpassed peak oil, as the company says oil demand could not peak until 2030.
# 2. Stimulus package After all the predictions of destruction and twilight, the world economy seems to be recovering from the devastating pandemic of a clip faster than expected. In fact, a handful of sectors in the United States and other economies have regained pre-crisis activity levels. A key reason for rapid recovery: unprecedented stimulus packages.
Shortly after the World Health Organization (WHO) declared Covid-19 a global pandemic, governments around the world unveiled massive monetary and fiscal stimulus (more than $ 15 million worldwide) in an attempt to prevent the economic consequences. The U.S. federal government intervened with a wide range of measures, including a $ 2.3 trillion package designed to support financial markets, state and local governments, entrepreneurs, and households.
Congress leaders finally reached an agreement on another $ 900 billion aid package on Sunday, after they managed to avoid government shutdown on Friday passing an extension of two days of funding that made the agencies run during Sunday night. On Monday evening, Congress voted on the new stimulus and passed.
Related: The largest energy bill in a decade has just been passed
A cross-section of analysts has warned that generous packages could bite markets again. New York Times bestseller and founder of The Bear Traps Report, Lawrence, Larry, McDonald, has warned “cobra effect” so, instead, the stimuli designed to save the economy ”…they cause a hyperinflationary economic collapse.“
However, government stimulus has proven to be an effective tool, at least in the short term.
# 3. OPEC + agreement
Two weeks ago, OPEC + members met to discuss future production plans with current production cuts that will end at the end of the year.
The bulls expected the oil-producing cartel to extend current production cuts of 7.7 million barrels a day for at least three more months. Instead, they received a major shake-up after OPEC + announced it would increase production by 500,000 barrels per day from January, effectively reducing total production cuts in early 2021 to 7.2 million barrels per day.
Surprisingly, oil prices have continued to rise since the announcement after an initial drop. An energy analyst explains why:
“January’s 500,000 bpd isn’t the nightmare scenario the market feared, but it’s not what was really expected weeks ago. Now markets are reacting positively and prices are rising slightly, as an additional 500,000 supply is not deadly for balances“Said Rystad Energy senior oil market analyst Paola Rodriguez Masiu.
In other words, the market is happy that the 23-member organization seems cautious with its production.
Another encouraging sign: the most prominent protagonists, Saudi Arabia and Russia, seem to be reading this time from the same page.
With the harsh lessons of the falling April oil price still fresh in his mind, OPEC + is unlikely to return to the meaningless price and market share war soon and therefore risk closing markets again.
By Alex Kimani for Oilprice.com
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