The Dow Jones index hit a symbolic milestone overnight, breaking through the 30,000 level.
Market sentiment remains underpinned by the trio of successful vaccine trials announced in recent weeks, as well as by the U.S. President’s decision after the close on Tuesday to co-operate with a transition of power to President-elect Joe Biden.
Thanks to the multiple vaccines in the pipeline, “Joy to the World” is ringing in earlier than expected as global investors are elated by the vaccine news.
Investors are simultaneously revelling in the drop in political existential risk premium now knowing the finishing touches on the U.S. election process will not devolve in mobocracy as the U.S. General Services Administration acknowledged that Joe Biden can start his formal transition to the White House.
Oil things considered
Heavy focus on the energy sector these days, providing the keen signpost that the world might return to normal faster than expected. Apart from providing much-needed protection for the most vulnerable, the vaccine also gives governments political wiggle to pull back from continued lockdowns. And this narrative continues to work its way through the oil markets.
The Biden transition, positive vaccine news, Yellen reportedly Biden’s pick for Treasury Secretary triggering an all-encompassing risk rally light a fire under energy EFT investors who have gone on a buying binge with WTI prices marching there a way to post lockdown Nirvana heights.
Oil investors are rightly jumping for joy as the AstraZeneca delivery is the real deal and a game-changing panacea as most of the developed world will be able to immunize its most at-risk population by the spring, likely the entire community by mid-year.
Oil hit its highest level since March with WTI touching $45.20 and Brent $48.03.
Expectations for U.S. gasoline demand for this week have improved. Petroleum analyst GasBuddy sees an increase of 10% week-on-week due to the Thanksgiving holiday. RBOB is up over 4.5% today
And while the immunized future looks bright for oil markets, oil traders were provided a present-day reminder why the OPEC quota extension will be the key to bridging the gap between the current COVID-19 environment and the vaccine rollouts.
In the meantime, the American Petroleum Institute reported a bearish build to the consensus in crude oil inventories of 3.8 million barrels for the week ending November 20.
While bearish on the surface, the inventory report bullishly suggests that OPEC will continue to by and of itself rebalance the oil market and deliver a three-month extension, which is the market base case scenario and largely priced into the oil market.
But it is the trifecta of galore that saw oil prices scale the post lockdown heights. Indeed, the markets seem to be charging ahead, betting on the bullish trifecta of early vaccine rollouts, OPEC quota extension, and a weaker US dollar.
Indeed, the energy sector vaccine rally has caught investors off guard. And there are signs of short energy position pain unwind.
The fact Energy rallies this hard every time there is vaccine news continues to highlight just how underweight investors are, with the last three Mondays. And apparently, the long-only oil exposure funds have not even got into the game yet.
I suspect Oil prices will need to move a bit higher before the long-only community returns in earnest, but the way Brent oil is trading these days, we might even hit the mystical $50 level in early December post-OPEC+ meeting if all goes well.
Equity and Oil market analysis and insights from Stephen Innes, Chief Global Market Strategist at Axi