Crude oil prices continue to revel on the back of Pfizer’s vaccine announcement.
In reality, this is more about regularizing the economic activity and individual mobility through 2021 and 2022, suggesting that the near-term price impact should reflect more about OPEC +’s upcoming decisions on quotas or the level of lockdowns needed in the northern hemisphere through the forthcoming winter months.
The front end of the curve has continued to move higher, with spreads tightening in both WTI and Brent. This reflects the ‘bullish’ sentiment that has taken over due to the commanding price backstop recently offered up by OPEC+ and the compelling vaccine efficacy story which continues to underpin Oil market outlook and likely responsible for the massive short positions squeeze across the curve.
Defying analysts’ expectations again, the American Petroleum Institute (API) reported on Tuesday a significant “draw” in crude oil inventories of 5.147 million, which bullishly comes on the heels of last weeks shockingly large draw in oil inventories.
Back to back draws combined with the two puts are better than one (OPEC+Pfizer) has allowed oil traders to stretch their wings as viable vaccine limits downside risk that has weighed on broader markets and the oil sector for much of this year.
And traders remain fully confident and hopeful, OPEC will follow through fixing the oil market leaky roof while still raining Covid-19.
If oil demand is ultimately judged by planes, trains, and automobiles moving from point A to B, the vaccine will eventually improve that view and push oil prices back above $50 in 2021
However, given the still cloudy near-term outlook, producer selling could become more evident as price moves higher, triggering more December hedging.
Even if there are no government-imposed lockdowns, people will likely keep their holiday festivities under wraps this year, confined to their abode.
So, with sentiment remaining skewed towards caution as demand will likely continue to falter between here and year-end, further gains could be hard to come by.
Oil market analysis and insights from Stephen Innes, Chief Global Market Strategist at Axi