Oil prices reversed early losses on Wednesday as some confidence that the existing vaccines can counter the new Covid-19 strain offset concerns over President Trump’s stimulus package pushback.
Rystad Energy’s Oil Markets Analyst, Louise Dickson, has commented on the gains:
"Today’s modest price rise is motivated by what decreased prices in previous days, but in reverse.
The oil market has been quite volatile this year and the last part of 2020 does not disappoint.
While a stimulus package agreement in the US helped oil prices keep up at decent levels in the last couple of days, despite the overall decline, today a pushback on the deal’s terms by President Trump has the opposite effect, adding uncertainty on a relief deal that the market needs.
Meanwhile, while a new strain of Covid-19 wowed traders in the last couple of days and shut all travel to the UK, causing a price decline, today drugmakers state they are confident that their vaccines should actually be able to counter the new coronavirus variant.
The confidence that the new Covid-19 strain, although more infectious, can also be countered by the existing vaccination campaigns has helped the oil market recover some early loses on Wednesday.
The vaccine effectivity is what, after all, has helped boost prices in recent weeks and news over their ability to get the world out of the pandemic are always something to trade on.
Nevertheless, prices are not as high as before the new Covid-19 mutation news.
The mutation of a Covid-19 strain in Europe has shaken the short-lived backwardation curve of Brent back into contango. In the last three trading days, the Brent spot price has tumbled from US$52 per barrel to US$49 per barrel, a bearish sentiment ahead of the winter holidays.
The new strain – which was first detected in the UK – can attack human cells more efficiently and is more infectious, but at the same time, scientists are assuring that the current vaccines should cover this new strain. The key word is of course “should”, and until this fear is put at ease, expect a contango Christmas.
On a positive note, bringing traders at some ease, France has lifted its ban on travel from the UK, and has re-opened borders, on the condition entrants have a negative Covid-19 test on hand.
The resumption of both transport and people between the two countries is a positive development, but the requirement for a Covid test will impede movement nonetheless.
Last but not least, there is an additional bearish risk today and it comes from the US, on top of the stimulus package lagging news.
Crude stocks in the US are projected by the API institute to have built last week, against some market participants’ expectations.
Rystad Energy’s own forecasts expect US commercial crude stockpiles to build by 0.7 million barrels for the week ending 18 December 2020. Despite our forecast that US oil production jumped to 11.4 million last week (week 51) from 11.0 million bpd reported in the previous week, a strong influx of imports will likely clog up storage."
Read the article online at: https://www.oilfieldtechnology.com/special-reports/23122020/oil-back-to-gains-on-covid-19-vaccine-confidence/