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Oil is on the rise after a third company developing a Covid-19 vaccine announced positive efficacy results this week. They may continue to rise for a while, but it would be helpful to be wary of betting on an endless rally. Yesterday, after AstraZeneca said its vaccine candidate was 90% effective in some cases, oil benchmarks jump at most in three months, as traders rushed to build their positions ahead of the rebound that should logically follow a successful vaccination campaign.
Fund managers also went shopping, John Kemp of Reuters She said in its weekly column. Total purchases made in the most traded crude oil and commodity contracts in the past two weeks reached 539 million barrels, Kemp noted, the highest since the beginning of September.
The buying frenzy is not limited to oil and analysts are taking note. The Bank of America last Friday She said Traders spilled into riskier businesses after Moderna and Pfizer’s two vaccine updates, pouring $ 27 billion into equity funds and stocks in the sectors most affected by the pandemic, including energy, banking and travel.
But the bank warned against over-optimism: “Let’s say credit and stock prices (will) peak in the coming months for peak positioning, peak policy, maximum profits while optimism. exceeds vaccine distribution, “analysts told BofA customers.
Related: Saudi Aramco’s historic IPO costs the kingdom billions In fact, the more oil and stock prices rise due to this vaccine-induced bullish trend, the more vulnerable they become to a correction. Reuters’ Kemp noted this in his column, and banking analysts warned it in customer notes.
The problem appears to be that traders are buying news about the vaccine’s effectiveness, but the efficacy and safety are just the beginning. Rapid distribution is another important aspect of a vaccine’s success and the scale of vaccinations is another. The process, which the head of the U.S. federal government’s vaccination program said could begin in early December, will take at least several months before the vaccinations are massive enough to make a difference to the so-called new normal.
In other words, it will take at least several months for oil demand to increase in a way that would be significant for prices over a period longer than 24 hours. That is, of course, if there aren’t serious side effects from approved vaccines that could wreak a whole new kind of chaos on oil and other markets.
Meanwhile, OPEC + is contributing to bullish sentiment by signaling that it would extend its current rate of production cuts until 2021, although it remains to be decided how long the extension will be. The cartel will meet next Monday and Tuesday to discuss the issue.
Related: EIA sees WTI crude oil averaging $ 44 in 2021
News from China this week is also supporting prices: Bloomberg reported that the country has begun to reduce oil inventories as domestic demand increases and imports decline as independent refineries have used most of their import quotas. Chinese stocks were a cause for concern among oil traders when they were close to capacity, so news of a decline was welcome.
Right now, things are looking good for oil. Pharmaceutical companies are forced to keep providing updates, and these will most likely not be positive. The rally could last a week or two if OPEC + decides on an extension of more than three months. But it will likely end when traders get a reality check, which is bound to happen. Air travel will not return to pre-pandemic levels overnight. It won’t return to normal even in two weeks. It will take months.
The sooner market participants accept this fact, the less likely it is that the oil price will collapse caused by frightened traders.
By Irina Slav for Oil “
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