Oil prices rose Monday, supported by optimism about the second vaccine; the coming OPEC+ meetings and by China’s recent processing data.
Though vaccine euphoria has already been priced in heavily since last week; the announcement of a second remedy to COVID-19 shows that a large-scale vaccination program. This is with sufficient amounts for the global population, is somewhat closer now, capacity wise.
“It will still take some time for authorization, production and vaccination of people; so oil demand will not benefit in the very short-term, but it definitely will benefit on the mid and longer term. Nevertheless such news are butter on traders’ bread and are moving prices,” said Rystad Energy Oil Markets Analyst Louise Dickson.
“Understandably news of a second vaccine carry an upside attraction for oil prices but oil demand is not at the moment affected on the ground. Vaccine news, which are rightly received as positive in the long-term, do not mitigate the risk that the US and other major oil-consuming centers will likely have to return to some form of lockdown in the very short term.”
“A vaccine will take months to become widely available. It will not immediately reverse lockdowns or bring back aviation traffic meaningfully during 1Q21.
“The recovery in road fuels has helped bring the 2020 oil demand average to about 90 million bpd; but we still see 2021 coming in short of 100 at 95-96 million bpd. In our current estimations, we do not see a normalization of global travel until 2022 at the earliest. We forecast a slower recovery for the aviation sector; with destruction in jet fuel demand of 1.8 million bpd for 2021 versus 2019 levels,” she added,
Cherry on OPEC+ cake
“On a trader level though, a boost in prices is natural. The second vaccine’s potential is a cherry on the OPEC+ expectation cake and cannot be anything but bullish for prices,” Dickson said.
“What will really determine if the gains are here to stay though is the outcome of the alliance’s meetings. A hint that OPEC’s supply will increase, as planned, from January will quickly reverse some gains; so all eyes are on that now. Such a scenario is the least likely though.
“The vaccine news already seem to be curing prices today, but time will show if the effect is a lasting one. It will take time for vaccines to be applied to the global population; but much time is something that the oil market doesn’t have, that’s why the OPEC+ meeting is so crucial.”
Rystad Energy’s Head of Oil Markets Bjornar Tonhaugen earlier said: “Oil prices started the week on a positive note again as traders have many bullish indications to hang onto.
“First and foremost we are ahead of the technical briefing that sets the stage for the OPEC+ JTC and JMMC discussions that will follow. The OPEC+ discussions of this month are not like any other meeting. The oil trading world is expecting, and has likely gambled on, the alliance to scrap plans of boosting its oil production by 2 million bpd from January.
“Many OPEC+ officials have indicated that this is a real possibility and that they would agree to such an extension of current output levels if the market situation requires it. Oil prices have already priced in the belief that OPEC+ will not open the oil taps further. And an indication that this may not happen will definitely have a depressing effect on them, if it comes.
“For the moment though, prices enjoy gains as all smoke signals point to a roll-over of current targets for 3 or 6 months. As OPEC+ ministers know that anything less will lead to a huge disappointment in the market and sub-40 oil prices very quickly,” he said.
Despite the OPEC+ technical meeting being the highlight of the week, there are other data the market is looking at. China’s crude processing rates in October were reported at a new record-high. The positive market sentiment is supported from the demand side this morning.
Traders put hopes on China to continue to pull the global oil market out of the slump; but China is by far alone not enough to let OPEC+ “off the hook”. In any case, when one of the world’s biggest oil consumers records an uptick in activity this has to be interpreted as a positive sign and Monday’s oil pricing also accounts to that element.
“Last but not least, not everything is boring after the election in the US. Eyes are still on coming policy from that side of the Atlantic. The oil market is seeing as positive that Biden’s coronavirus advisers oppose a nationwide lockdown; but rather prefer targeted local measures. This makes a huge difference for oil demand in the country responsible for 20% of global oil demand.,” he said.