Oil prices are heading for their highest weekly close since the Covid-19 pandemic started to really hurt in March, and unless some minor losses this morning get extended, Brent is on track to end the week with above the major psychological threshold of 50 dollars per barrel.
The vaccine optimism that has gripped the market since a few weeks and taken it for a wild gains ride seems to continue unscathed due to the back to back approvals vaccines are getting and the quicker-than-previously-thought rollout of the first campaigns in key markets.
Even before their wider application, vaccines already seem to be causing side effects on the market: acute hyperopia.
Current prices reflect a market that completely ignores the fragility it is still in for the short-term, as traders have decided to look past it and focus on the eventual “back-to-normal” once the vaccines are deployed.
Our short-term balances point to a market that continues oversupplied throughout 1Q21, albeit exhibiting moderate stock builds.
In addition, even if product demand has significantly recovered, crude demand continues to lag behind as refining margins are at multi-year lows in many regions and the recent rally in prices isn’t exactly helping. The bullish crude price increase is turning bearish for margins and forcing refiners to further trim runs.
Although optimism is certainly justified as the vaccine has removed uncertainty for the market in the mid-term, the short-term crude demand remains anything but given as winter is fast-approaching and governments warn of a third wave of cases in the northern hemisphere, while we are still handling the consequences of the second-wave.
A correction could be across the corner once the consequences of winter’s lockdown are more evident, possibly in further stocks build and real-time traffic data that will hint the hit road fuels are currently getting.
Nevertheless, the very fact that prices broke the 50-dollar ceiling this week is positive for the market. The market has been in a low-price reality for a while, so even if some gains are trimmed today, looking at the weekly performance and at the overall trend, oil is in a much better position than earlier in the year and optimism has returned for the future.
