Oil prices continued to rise today on confidence that Covid-19 vaccines and OPEC+ will help the market earlier than expected.
Rystad Energy’s Head of Oil Markets, Bjornar Tonhaugen, has commented on the price rise:
"The oil price comeback seems unstoppable since news of positive vaccine trials arrived and the rise has sidelined other short-term concerns, even lockdowns and increasing crude inventories.
The market is taking a big short-term gamble here, demand is definitely not doing any better for the moment due to the vaccine news, lockdowns are keeping road and jet fuels unused and one would wonder how sustainable the price gains are.
Even if some vaccinations begin in late December, this won’t immediately help oil demand until the remedy applies to large volumes of people.
Oil demand will still need crutches going into 2021 and the market needs to see decisiveness from OPEC+ in the coming meeting. An extension of the current production levels is needed, but although it is not yet official it is widely expected and priced in, which involves a certain risk.
As the rally continues in the oil market, both flat price and time spreads continue to strengthen further.
In just a matter of 2 trading days, the Brent futures curve has gone from pricing in a balanced-to-oversupplied market to pricing in a tight market between January 2021 through March 2022!
The futures curve went yesterday into so-called backwardation between these two points in time, where earlier-dated contracts are priced more expensively than later-dated contracts, which signals that supply-demand balances will be tight/in deficit over the time period.
Clearly, this is no certainty, but it signals what the market now bets on and prices in.
We believe positive vaccine news and swift deployment views are behind a significant part of this move in the curve, supported by increasingly firm beliefs by the market that OPEC+ will extend its current output targets for the 1Q 2021. With this, and basically only this, can the shape of the curve be justified.
This puts the market at risk of great disappointment if OPEC+ fails to do the “right thing” come Monday.
Meanwhile, in an unusual defiance act, the market ignored projections from the API report that US stocks built last week.
Traders will be watching the DOE weekly report today for signs of a turnaround in the demand weakness from end-users to crude processers as a guide into the Thanksgiving weekend and OPEC+ meeting on Monday/Tuesday."
Read the article online at: https://www.oilfieldtechnology.com/special-reports/25112020/oil-rises-on-vaccine-and-opec-gamble/
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The well was drilled by the ‘Deepsea Stavanger’ drilling rig, about 25 km southwest of the Oseberg field in the North Sea and 150 km west of Bergen.