The star of the show overnight was the energy sector, with Brent currently sitting 3% higher on the day ($50.33), rising above $50 a barrel for the first time since early March, fueled by vaccinated hopes of a faster demand recovery.
An unwavering dip-buying strategy envelops markets as the combination of OPEC+ quotas, which are expected to keep the market floating on an even keel through the petulant northern hemisphere winter and improving road fuel demand is seen as rising faster than expected with the emergency vaccine deployments globally.
And this is without a US stimulus package, which could offer yet another bounce to oil prices.
Unquenchable demand from China and India
Asia continues to provide much of the backstop for physical with unquenchable oil purchases by China teapots and multiple Indian producer tenders in the pipeline. And the softer US dollar is helping the overall commodity cause.
Big oil traders appear to be strategizing their 2021 outlook a lot more bullishly and faster than expected. But really, is it much of a surprise with multiple high-efficacy vaccines inoculating parts of the world before Christmas?
We could be seeing some front running buying ahead of the EIA, and the Paris-based International Energy Agency, which next week will provide an important year-end sense-check as investors consider positioning into 2021.
Will OPEC move if prices continue to rise?
My major concern is not about the logistical issues of vaccine rollout. It is more about the re-emergence of OPEC + ‘s internal pressure as prices move higher.
Any renewed fissures or news that pushes back the point at which OPEC+ can step back earlier from a more active role managing supply will provoke a sharp sell-off in oil.
With that in mind, volatility will most certainly head higher ahead of the next OPEC+ meeting in early January.
While the recent rally leaves oil at risk of profit-taking into year-end, fundamentals support oil prices at current levels. They suggest there will be multiple forecast outlooks getting rewritten in short order.
Oil continued to rally today, completely disregarding the huge stock build reported yesterday. WTI traded to a high of $47.74, and Brent broke through the psychological level of $50 a barrel to a high of $51.06.
After moving back to contango at the beginning of the week, the Brent curve’s front is back into a steep backwardation with Feb21 $0.13 over Mar21.
Oil market analysis and insights from Stephen Innes, Chief Global Market Strategist at Axi