Crude oil futures have rallied in recent weeks, defying the usual trend of profit-taking ahead of the Christmas holidays. WTI traded towards $ 49.20 on Friday’s session, while Brent oil was trading at $ 52.40, levels they last reached in February before the oil price crash.
Of course, the big question for most traders right now is whether this rally has the legs to continue into the festive season and even beyond.
In purely technical terms, crude oil has had higher highs on the weekly charts since April. The last spike came on December 10, and the next was expected around the psychological $ 50 level on NYMEX futures. The following technical resistance levels are at the mid-February high of $ 54.50 as well as the 2020 peak of $ 65.65.
The Oil and Gas Benchmark, Energy Select Sector SPDR fund (XLE), is up 12% in the last 30 days compared to a 4% gain from the S&P 500.
Here are three main reasons why we remain optimistic about the oil market.
# 1. Covid-19 Vaccines A major reason why the energy sector has emerged as the top performer in recent weeks is a wave of potential Covid-19 vaccines become available.
The rollout of it Pfizer-BioNTech BNT162b2 mRNA-based vaccine launched in the United States last week. The vaccine reached long-term care facilities a few days ago Walgreens looking to expand the program to nearly 3M residents and staff in 35,000 long-term care facilities. Until now, only two people Serious allergic reactions to the vaccine have been reported in both middle-aged health professionals. However, health experts have sent re-statements that the vaccine is still safe for the general public. Related: Oil, Gas Platforms Rise for Fifth Week in a Row
The vaccination pathway so far suggests that the majority of the American public likely got the vaccine by the end of February, better than the one-third of the population target set earlier by Dr. Moncef Slaoui, chief of Operation Warp Speed. projected.
Meanwhile, the EU will roll out its vaccination program on December 27, 2020. A few days ago, From Moderna Inc. announced that the European Commission had exercised its option to purchase an additional 80 million of its COVID-19 vaccine candidate, expanding the company’s total order commitment to 160 million doses.
The early success of the rollout programs has led the oil markets to much optimism, even conservative BP Plc (NYSE: BP) going back to its earlier forecasts that we may have passed peak oil, as the company now says oil demand may not peak until around 2030.
# 2. Incentive package After all the predictions of doom and gloom, the global economy appears to be recovering from the devastating pandemic of a faster than expected clip. Indeed, a handful of sectors from the US and other economies have returned to pre-crisis activity levels. An important reason for the rapid recovery: unprecedented stimulus packages.
Shortly after the World Health Organization (WHO) declared Covid-19 a global pandemic, governments everywhere unveiled massive monetary and fiscal stimuli (more than $ 15 trillion worldwide) in an effort to avoid an economic fallout. The US federal government intervened with a wide variety of measures, including a package of $ 2.3 trillion designed to support financial markets, national and local governments, employers and households.
Congress leaders finally reached an agreement on an additional $ 900 billion in aid package on Sunday, after managing to narrowly avoid a government shutdown on Friday. endure an extension of two days of funding that the agencies kept running on Sunday evening. Congress voted on the new stimulus Monday night and it was passed.
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A cross-section of analysts has warned that the generous packages could come back to bite the markets. New York Times bestselling author and founder of ‘The Bear Traps Report’ Lawrence ‘Larry’ McDonald has warned against the ‘cobra effect’ whereby the stimuli intended to save the economy will instead be ” …cause a hyperinflationary economic collapse.”
Nonetheless, government incentives have proven to be an effective tool, at least in the short term.
# 3.OPEC + agreement
Two weeks ago, OPEC + members met to discuss future production plans, with current production cuts expiring at the end of the year.
The bulls hoped the oil-producing cartel would extend current production cuts of 7.7 million barrels per day for at least three more months. Instead, they received quite a shock after OPEC + announced that it will increase production by 500,000 barrels per day from January, effectively reducing the total production cuts to 7.2 million barrels per day by the beginning of 2021.
Surprisingly, oil prices have continued to rise since the announcement after an initial dip. An energy analyst explains why:
“500,000 bpd as of January isn’t the nightmare scenario the market feared, but it’s not what was really expected weeks ago. Markets are now responding positively and prices are showing a slight rise as an additional 500,000 supply is not lethal to balances, ”Said Paola Rodriguez Masiu, senior oil market analyst at Rystad Energy.
In other words, the market is pleased that the 23-member organization appears to be reluctant to produce.
Another encouraging sign: leading protagonists, Saudi Arabia and Russia, seem to be reading from the same page this time.
With the hard lessons from the oil price crash in April still fresh in mind, OPEC + is unlikely to revert to pointless market shares and price wars any time soon and therefore run the risk of restraining markets.
By Alex Kimani for Oilprice.com
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