Crude Oil Roundup
It’s been a solid start to the week for oil markets, reflecting the vaccine tailwind that’s driven strong risk appetite across all assets. Although Covid-19 cases continue to mount, the economic impact at present appears lessened by a low desire to return economies to full lockdown; the incoming Biden team indicated as much at the weekend by flagging its preference for targeted measures.
On the supply side, the Baker Hughes rig count showed a +10 w/w build to 236, continuing to advance off the lows but still very far below the ~400 needed to maintain production in the lower 48.
Still, sentiment around the short-term oil price will be determined by Covid demand effects and OPEC+ actions to offset them. At the same time, the longer-term market is a vaccine-driven one.
Ultimately, if we judge economic recovery through the lens of oil markets from planes, trains and automobiles, and activity moving from point A to B, with multiple high efficacy vaccines in the pipeline, there’s a good chance mobility will return close to pre-pandemic levels later in 2021.
Oil rallied more than 4% percent on the positive Moderna vaccine news, erasing Friday's losses. Additionally, oil prices caught a most welcome boost on the heels of very positive Asian data from both China and Japan. The move above $42 proved unsustainable but the sentiment is upbeat, given the logistical requirements for the Moderna vaccine are less stringent than for the Pfizer one. And despite stern Covid warnings from Angela Merkel in Germany and California sounding the alarm bell by dramatically rolling back reopenings amidst an unprecedented Covid-19 surge, oil markets remained in positive territory for the whole session.
Indeed, China's thirst for all things oil was evident in yesterday's data after reporting a 14.09mbld of oil demand for October, topping a previous daily record. This as gasoline demand soared due to the early October holiday.
All eyes on OPEC+ JMMC
All eyes and ears will be trained on the OPEC+ Joint Ministerial Monitoring Committee (JMMC) today, which can recommend policy steps to OPEC+ as demand remains subdued due to increasing Covid-19 restrictions, expectations and the market’s base case scenario which is for a quota extension for 3-6 months. The meeting of the OPEC+ JMMC would largely be devoted to quota cuts introduced back in April to stabilize the energy markets. The nations are currently slashing 7.7 million barrels a day collectively until December 31. After that, the OPEC+ producers plan to ease the cuts further.
The JMMC is an excellent opportunity for OPEC+ ministers to assess the global oil market's state and compliance with the OPEC+ agreement. Still, I’d be surprised if it weren’t also used to gauge appetite for the possibility for deeper cuts to help mitigate the negative impact of the surprise uptick in Covid-19 infections in Europe and the US in recent weeks. Anything that shows OPEC’s willingness to do what it takes while maintaining a unified front will be perceived positive for the oil market.
Since the last JMMC, Russia has appointed a new energy minister, Nikolay Shulginov, but for policy continuation efforts, and as part of the hand over process, his predecessor Alexander Novak was promoted to deputy and is still expected to oversee OPEC + issues in a collaborative fashion and will take part in Tuesday’s meeting.
Both Brent and WTI curves are firmer, signaling that rebalancing is underway. As a result, the spreads continue to tighten; the WTI Dec20/Jan21 is only $0.25 wide, and the Dec20/Dec21 spread is again at -$1.77, after closing at -$2.26 on Friday. The Brent Jan21/Feb21 is just $0.15 wide, and the Jan21/Jan22 is trading at -$1.50, having closed at -$1.99 on Friday.
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Investors are still digesting the latest statements from the US central bank, which surprised markets with a far more hawkish stance than expected