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For those who have been paralyzed by oil demand forecasts over the past eight months, the recent news that Pfizer’s Covid-19 vaccine is 92% successful likely came with renewed hope that oil demand could finally rise and bringing the industry out of its languishing stasis since the start of the pandemic.
The blockades are to blame for the loss of oil demand. And now, invigorated by the possibility that this new vaccine will allow people to resume their normal lifestyles – traveling by plane, dining out and shopping – the price of crude oil is rising.
They expect oil demand to pick up – and fast – and not even the news of a series of additional freezes coming into effect this week is dampening the bullish spirit of oil.
Hold on to your bulls
The reality is, however, Pfizer’s vaccine – which has not yet received FDA approval – will not be available to the masses for months. The oil bulls may want to tie this truth together.
And while it certainly looks promising, the vaccine has to go through a pretty rigorous approval process, and that’s not a sure thing at all. If it were sure, they would skip the approval process and move on.
What to expect
This is not to say that things don’t look promising in the long run. But we are definitely talking about the long term.
In the short term, we have a new round of lockdowns sweeping the globe that includes Sweden, New Jersey and New York, all with varying degrees of activity restrictions. Most of these restrictions involve eating out and going to bars. Some include more restrictions on private meetings.
These last restrictions on our way of life are only the latest. Last week Austria, France, Germany, the UK and Portugal started implementing a wide variety of restrictions that will no doubt exacerbate the oil demand problem. Related: Oil funds could see record gains in December
And while a vaccine seems likely, things may not move as quickly as some expect. Below is a rough timetable of how the vaccine is expected to progress.
1) Security
With efficacy now established, Pfizer must establish safety, which comes after two months of monitoring. This is to establish the likelihood of side effects. That two-month signal will come on November 16th.
2) Emergency use
Next, Pfizer must apply for emergency use authorization from the FDA. This allows Pfizer to ignore some of its studies required for traditional approval. This is typically not a quick process. The FDA will deliberate at a public meeting to determine if emergency use will be granted. It is very likely that this emergency use will only be granted to high-risk individuals such as those with comorbidities and possibly healthcare professionals. There is actually no estimate of how long it will take. The FDA simply said it intends to be fast.
3) Rollout for emergency use
The good news is Pfizer has already started manufacturing its Covid-19 vaccine, counting on approval. This saves a lot of time. However, limited quantities are still available at this stage and the emergency use authorization does not cover all. Therefore, the initial launch of the vaccine will target a limited number of people, who will then be monitored to ensure no other side effects emerge.
4) The first 25 million people
Pfizer said it will have 50 million doses available by the end of the year. It will likely start dripping in late November or early December. That figure of 50 million is good for 25 million people because each person has to be given two doses. It is not known whether these 25 million are used in the emergency use portion of the process or whether a portion of it is left for full implementation. But in either case, at most, 25 million people – worldwide – will receive the vaccine in 2020. At less than 0.3% of the world’s population, this won’t affect even the smallest dent in activity levels and hence of oil demand.
5) The next 1.3 billion doses
This brings us to 2021, when Pfizer expects to have 1.3 billion doses available, which means an additional 650 million people will be able to get vaccinated next year. Of course, this doesn’t take into account other vaccine manufacturers like Moderna, which announced Wednesday that it is ready to begin analyzing the interim data accumulated during its study, even though we’re talking about just 53 cases. Other countries can also produce a viable vaccine. The US, UK, Canada, Japan and other European countries have already ordered millions of doses from Pfizer. Indeed, just this week, it was revealed that the EU made a deal to purchase 300 million doses, for less than what the US will pay. This also means that those 650 million people will be scattered around the world – and throughout 2021 – nullifying the possibility that any single location could return to normal.
Many people have probably heard Dr. Fauci say that the rest of the world could have the vaccine in April. But it refers to when the vaccine will start to be available to everyone, not that everyone would have it available. In fact, Dr Fauci said it may take the second or third quarter of 2021 as well to get people to take it.
In other words, everyone should link up because oil demand will not pick up in January or even in the first quarter.
When will the demand for oil increase?
If you’re listening to Reuters market analyst John Kemp, we won’t see a recovery in oil demand for another six or even twelve months.
“Coronavirus vaccines are expected to increase international passenger transport and oil consumption, but the first significant impact will not be felt until the second half of 2021, based on movements in futures prices on Monday,” he said. Kemp in a comment on Monday. Related: EIA sees WTI crude oil averaging $ 44 in 2021
This view is likely shared by OPEC, which released its MOMR on Wednesday. In it, OPEC predicts that oil demand will drop by 300,000 bpd more this year than previously thought last month. OPEC also said that this weak demand will continue into the next year. Also cutting the demand outlook for next year, OPEC now sees oil demand for 2021 300,000 barrels per day lower than was previously thought last month. This means that it sees oil demand in 2021 at just 6.2 million barrels per day compared to 2020 levels and still below 2019 levels.
Why so sad?
“These downward revisions mainly take into account the downward adjustments in the economic outlook in OECD economies due to COVID-19 containment measures, with the related negative impacts on transport and industrial fuel demand until mid-2021” OPEC said in its MOMR, adding that the recovery in oil demand “will be severely hampered and it is assumed that the slowdown in transport and demand for industrial fuels will last until mid-2021”.
OPEC had few words about a Covid-19 vaccine. “Further support, currently unexplained, could come from an effective and widely distributed vaccine as soon as 1H21. However, further downside risks to the current growth outlook could stem from ongoing challenges due to Brexit, growing geopolitical challenges in selective regions, unexpected repercussions from rapidly rising global debt levels and growing social unrest in some countries such as consequence of COVID-19 and growing inequality. “
In other words, OPEC at least believes the vaccine could help increase oil demand at some point in 2021, but there are a whole host of other challenges that could dent the economy – and thus the demand for oil – Next year.
What does the AIE say?
The IEA released its bomb on demand for vaccine oil on Thursday, saying oil demand is unlikely to see a substantial increase from a new vaccine – even one that will begin rolling out in limited capacity later this month. – until it is good. in 2021.
“It is too early to know how and when vaccines will allow us to resume a normal life. For now, our forecasts do not foresee a significant impact in the first half of 2021, “the IEA said, adding that” The negative outlook for demand and increased production in some countries … suggests that current fundamentals they are too weak to offer firm price support. “
And while the market largely ignored OPEC’s pessimistic view of the vaccine’s effect on oil demand, the IEA forecast did not go unnoticed; Oil prices began to decline early in the morning on Thursday.
By Julianne Geiger for Oil “
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