In the long run, crude oil has risen in recent weeks, defying the usual trend of making a profit before the Christmas holidays. WTI traded up $ 49.20 in Friday’s session with Brent crude trading at $ 52.40, levels it last reached in February before the oil price collapsed.
Of course, the big question for most traders right now is whether this rally has the legs to continue during the festive period and beyond.
On a purely technical basis, crude oil recorded higher highs on the April weekly charts. The latest peak came on December 10, with the next one hovering around the $ 50 psychological level on the future of NYMEX. The next levels of technical resistance are at the maximum in mid-February, of 54.50 USD, as well as at the peak of 2020, of 65.65 USD.
Reference point for oil and gas, SPDR fund for the selected energy sector (XLE), gained 12% in the last 30 days, compared to a gain of 4% in S&P 500.
Here are three key reasons why we remain optimistic about the oil market.
# 1. Covid vaccines-19 An important reason why the ranking of the energy sector has become the best in recent weeks is a flurry of potential Covid-19 vaccines becoming available.
Launch the program Pfizer-BioNTech The BNT162b2 mRNA vaccine began in the United States last week. The vaccine arrived a few days ago at long-term care units with Walgreens seeks to expand the program to nearly 3 million residents and staff to 35,000 long-term care units. So far, just two people it was reported that they experienced severe allergic reactions to the vaccine, both middle-aged health workers. However, health experts have sent resources that the vaccine is still safe for the general public. In connection with this, the oil and gas beams increase for the fifth week in a row
The trajectory of the vaccine so far suggests that the majority of the American public would probably have received the vaccine by the end of February, better than a third of the target population that Dr. Moncef Slaoui, head of Operation Warp Speed, had previously designed.
In the meantime, the EU is due to launch its vaccination program on 27 December 2020. A few days ago, Moderna Inc. has announced that the European Commission has exercised its option to purchase an additional 80 million of its COVID-19 vaccine, extending the company’s total order commitment to 160 million doses.
The early success of the launch programs has instilled a lot of optimism in the oil markets, even for conservatives. BP Plc (NYSE: BP) returned to its previous forecasts that the peak of oil could have been exceeded, the company saying that the demand for oil may not increase until around 2030.
# 2. Stimulus package After all the predictions of fate and sadness, the global economy seems to be recovering from the devastating pandemic of a clip faster than expected. Indeed, a handful of sectors in the US and other economies have actually returned to pre-crisis activity levels. A key reason for rapid recovery: unprecedented incentive packages.
Shortly after the World Health Organization (WHO) declared Covid-19 a global pandemic, governments everywhere revealed massive monetary and fiscal stimuli (over $ 15 million globally) in an attempt to prevent an economic impact. The US federal government has intervened with a wide range of measures, including a $ 2.3 trillion package designed to support financial markets, state and local governments, employers and households.
Congress leaders finally reached an agreement on another $ 900 billion aid package on Sunday, after they managed to narrowly avoid closing the government on Friday until passing a two-day extension funding that made the agencies run until Sunday night. Congress voted Monday night on the new stimulus and passed.
About: The biggest energy bill in a decade has just been passed
A cross-section of analysts warned that generous packages could return to bite markets. New York Times bestselling author and founder of The Bear Traps Report, Lawrence “Larry” McDonald, warned about “Cobra effect” through which the incentives designed to save the economy will instead “…causes a hyperinflationary economic collapse.”
However, the government stimulus has 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 the current production cuts to fall at the end of the year.
The bulls hoped the oil cartel would expand its current production cuts by 7.7 million barrels a day for at least another three months. Instead, they received a shock after OPEC + announced that it would increase production by 500,000 barrels per day starting in January, effectively reducing the total reduction in production at the beginning of 2021 to 7.2 million bpd.
Surprisingly, oil prices have continued to rise since the announcement, after an initial decline. One of the energy analysts explains why:
“The 500,000 bpd in January is not the nightmare scenario the market feared, but it is not what was really expected a few weeks ago. Markets are now reacting positively and prices are rising slightly, as an additional 500,000 bids are not lethal to balances.Paola Rodriguez Masiu, chief analyst at Rystad Energy Oil Markets, said.
In other words, the market is happy that the 23-member organization seems to be cautious with its production.
Another encouraging sign: Leading protagonists, Saudi Arabia and Russia, seem to be reading the same page this time.
With the hard lessons of the April oil price collapse still fresh in mind, OPEC + is unlikely to return to meaningless market shares and price wars soon, and therefore risks playing the markets again.
By Alex Kimani for Oilprice.com
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