Oil is trading higher, but still not the rallying cry needed to get the oil complex back on its feet, especially in the wake of the latest precipitous falls.
Encouragingly though, as prices shift higher, spreads have tightened a bit, but the contango remains solid with the WTI Dec20/Dec21 -3.62 and provides the poorest forward-looking optics of them all.
But at these levels, trading houses might begin to think about buying for future delivery and could start bidding for offshore storage, which is typically the case when tanker rates are as depressed as they are right now.
The slope and curve economics are not quite there at the moment, but in the absence of further OPEC interventions, should the curve steepen more and tanker rates remain favourable, trading house demand could provide a keen level of support.
Tesla the epitome of anti-oil play
The catalyst for the fall in crude has also been the sell-off in equity markets and especially what appears to have been a bubble in tech stocks where Tesla, the epitome of the anti-crude oil play, tumbled massively this week.
So it would make sense also that as stock markets surge again, oil prices will push higher, and that’s exactly what happened overnight. Still, investors may need to fill Tuesday’s Nasdaq gap to get oil prices kicking into a larger gear.
In the background, of course, continues to be Covid-19 concerns and the delicate balancing act needed to return economies to a new normal and manage the likely rise in cases in the northern hemisphere when social activities move indoors, and the coronavirus could spread more aggressively.
Pause in vaccine trials
In this regard, AstraZeneca pausing all vaccine clinical trials yesterday roiled the oil markets that had started to become more optimistic about a vaccine over the last month.
However, there is light at the end of the vaccine tunnel as AstraZeneca’s Covid-19 trials may resume next week, according to some news reports. The drugmaker had suspended its vaccine trials after an unexplained illness in a UK participant. And this pivot is being consumed on the positive side of the ledger.
In reality, prices above Brent $45/bbl were getting ahead of the recovery as most of the low hanging bullish fruit had been consumed.
And traders simultaneously found themselves at the end of the bullish runway running headlong long into one of the biggest price impediments of them all – the “end of summer” seasonality waning demand.
Markets shifted into what can’t go up must go down mode as profit-taking initially got the ball rolling downhill, then all the rest of the knowns pilled on top.
Oil markets analysis and insights from Stephen Innes, Chief Global Market Strategist at AxiCorp