Crude oil prices pink at its peak 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 stocked with vaccines by tomorrow. But traders, who have been eagerly buying oil and feeding futures for the past few weeks, are now preparing for a market correction. John Kemp of Reuters said hedge fund traders halted their purchases of crude oil and derivatives contracts dit in his weekly column, noting that this is the fifth consecutive week that traders have bought with a voracious appetite.
However, this appetite will be difficult to maintain, even after vaccinations begin in the United States, for two main reasons: how long it will take to vaccinate the population and the basics of oil.
Regulatory approval of the Pfizer-BioNTech vaccine for the United States was an important step in an upward direction in oil, but it was the first of many. There are still challenges in terms of availability and logistics. CNN reported yesterday that while the first medical workers were vaccinated on Monday, it would take months for most Americans to be vaccinated.
The federal government bought 100 million doses of the Pfizer vaccine earlier this year, meaning 50 million people will be vaccinated, as it is a two-dose vaccine. Pfizer has it now dit it would not be able to supply additional quantities until mid-next year.
In short, it will be a while before things start to return to normal.
Europe is also in an uncertain position with vaccines. Governments are wary of making vaccination against Covid-19 mandatory, but there is growing public distrust of vaccines against Covid-19 that could jeopardize efforts to achieve herd immunity through inoculation.
Then there is the question of the supply and demand of oil that could pull the wheels of this latest price rise. OPEC is preparing to start pumping half a million more barrels a day from January. The United States is already bombing more, and so is Libya, which has produced the latter 1.25 million bpd earlier this month. Related: Goldman turns oil into bullish: Brent sees $ 65 in 2021
At the same time, OPEC yesterday discounted its oil demand forecast for this year. The cartel now expects demand to fall by 9.7 million barrels per day since the beginning of the year, averaging 89.99 million barrels per day. The demand projection for 2021 was also revised. OPEC now expects oil demand for 2021 to reach an average of 95.89 million barrels per day, which would be a solid improvement over 2020, but still 410,000 barrels per day lower than previous projections.
Then there’s Iran, which said so last week expected it will export 2.3 million bpd of oil next year, with the certainty that it could reach an agreement with the Biden administration regarding sanctions that are currently stifling its oil exports. An agreement is not exactly certain: although Biden has indicated that it is ready to negotiate, Iran has in turn indicated that it would not be the first to make concessions. In addition, the US energy industry does not expect any further fall in prices and may exert some pressure on the president-elect.
At the same time, the Asian recovery from the pandemic is certainly bullish for oil, as is Europe’s exit from the second round of blockades. According to a recent Bloomberg report, fuel inventories have been steadily depleted, with India, China and Japan reporting a rise in gasoline demand. For many analysts, the rebound is only a matter of time, and this time it looks like next year, pushing up prices despite the challenges.
“Oil is the cheapest of all reflation assets,” according to Amrita Sen of Energy Aspects, who spoke to Bloomberg. “With vaccines being deployed slowly, we expect investors to start returning to the oil sector and prices to continue to rebound.”
“The price momentum has dropped significantly in recent weeks and while some new or unexpected bullish headlines may be required to move the complex into new high territory, we will also see a market that appears to have developed immunity. to bearish headlines another analyst, Jim Ritterbusch of Ritterbusch Associates, he said Reuters.
In other words, the clouds over oil are starting to clear. It could take a while to clear up completely, but the demand is in the process of being repaired and ultimately this is the most important factor right now.
By Irina Slav for Oilprice.com
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