Oil prices kept their gains on a combination of good news, the vaccine prospect, US crude stocks and OPEC+ supply indications.
Rystad Energy’s Head of Oil Markets, Bjornar Tonhaugen, has commented on the day's developments:
"This week is a bullish news bonanza for oil traders who see price gains keeping their levels.
News of a possible vaccine against Covid-19, a projected draw in US crude stocks and widespread expectation that OPEC+ may postpone a scheduled supply increase are fuelling the price gains.
It started as a week trading mostly on a vaccine which could help oil demand recover in 2021. Covid-19 won’t go away on its own and the vaccine is a major breakthrough to help counter the pandemic, which is what is needed for normality to return.
Lockdown periods, when they come and go, mean that oil demand will be taking a hit periodically. If a vaccine will mean lockdowns will become a thing of the past, we can start talking about oil demand slowly fully recovering.
Added to the vaccine jubilations, OPEC+ members have been saying left and right that ‘hey, we could possibly keep supply where it is for a while’, instead of increasing it from January.
The latest voice to add to this expectations was Algeria’s energy minister yesterday. The we have Iraq saying it will align with Saudi Arabia if needed. And Russia seemed open to the prospect of waiting further before boosting again production.
These OPEC statements are music to traders’ ears, who are also reading vaccine everywhere, and as a cherry on the pie they see expectations for crude stocks decline. No wonder why the finger is hitting the Buy button furiously this week.
According to several OPEC delegates the discussions are centering around a three to six months extension of the current cuts, which we believe is fairly adequate to ensure that the overall upwards trend in oil prices can continue in the first half of 2021, ensuring stock draws if everything else stays as is.
The main question of course is for how long the short-term prices can keep their levels. The vaccine will not really affect the short term demand and will only enter the picture at some point next year if successful.
OPEC+ supply staying where it is will definitely help the market from January, but what happens today is that demand is actually falling due to the new lockdowns.
This is a reality that will settle again and in our view prices won’t hold such gains for too long and it will take some time for all the positive news to really blossom."
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