by Bjornar Tonhaugen, Head of Oil Markets - Rystad
Traders who have been preparing for a calmer week after the US election marathon last week, now have to unpack calculators and revamp forecasts.
Crude futures are soaring on the surprising news from Pfizer and BioNTech, reporting very promising results from its Covid-vaccine program.
Oil prices are reacting violently positive as the market is pricing in the possibility of a quicker roll-out of a global vaccine, exacerbated by a large amount of short positions which needs to be covered when prices start soaring.
In the eyes of traders, a vaccine will help ensure no future lockdowns are needed and will bring people back to the streets, allowing road and air transport to recover.
Essentially a vaccine is a bullish sign against Covid-19 pessimism. The pandemic is what keeps oil demand from recovering and this is clearly positive news for the market.
However, the violent price reaction will probably reverse soon, as the market realizes the near-term impacts on oil demand will be non-existent, a vaccine is not exactly coming tomorrow.
The reality is that the timing of a global roll-out of any vaccine is further down the road than some believe, so it will take a long time to apply it to the global population.
This means that the vaccine news are indeed bullish, but mostly bullish on a longer-term prospect.
It does, though, give a sense of how severely impacted oil markets are by the coronavirus restrictions, as the market will look to digest more details about the trial results.
We recommend patience as the news of a vaccine are likely currently taken by the market with an extra grain of bullish sentiment.
Pfizer may have been sitting on this ‘good market news’ for some time, gingerly awaiting US election results before going public.
If Moderna comes out with a similar statement this week, that could tee up 2 Covid-19 vaccines in the US by year-end.
The fast-tracking of multiple vaccines doesn’t mitigate the risk that many US states will have to return to some form of lockdown this autumn/winter – immunity doesn’t arrive the day the vaccine is released, it takes months.
While the vaccine news may simmer discussions of stricter mobility restrictions in the US, it has a less immediate material effect on Europe – the current driver of oil demand destruction – where if lockdowns continue, Rystad Energy sees a risk of 1 additional million bpd of oil demand being lost through year-end.
