Oil Price Fundamental Daily Forecast – Timing of Pfizer Vaccine Will Determine Next Major Move

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are edging higher on Tuesday after posting its biggest rally in six months the previous session. Reuters is reporting that oil traders rushed to unwind a bevy of bearish bets after Pfizer announced promising results for its COVID-19 vaccine, shaking up energy markets that were primed for demand to sink into the winter on increased lockdowns and rising coronavirus infections.

At 13:18 GMT, December WTI crude oil is trading $40.39, up $0.10 or +0.25% and January Brent crude oil is at $42.65, up $0.25 or +0.59%.

Rally Fueled by Mix of Short-Covering, New Buying

WTI and Brent crude oil prices plunged earlier in the year as global demand was destroyed due to travel restrictions to curb the spread of COVID-19. Ahead of last weekend, investors were continuing to bet heavily on further price deterioration as worldwide infections surpassed 50 million and numerous countries re-imposed restrictions and lockdowns to slow the virus’s spread.

The game changed on Monday morning, however, when Pfizer said its vaccine was more than 90% effective in preventing coronavirus, sending equity and commodities markets surging.

Reports showed that more front-month contracts traded Monday than any day since April, while those oil traders holding short positions rushed to reverse them to limit losses.

“More longs are coming in but it’s a mix of short covering too for sure,” a source at a bank told Reuters.

Shorts Forced Out – Societe Generale

In the week to November 3, commodity markets experienced bearish flows – a combination of selling long positions and adding to short positions – of $9.6 billion, highest since March, according to Societe Generale. The energy complex contributed $4.6 billion to that bearish activity, the bank said in a note.

Additionally, money managers had also built up $426 million worth of short positions in gasoline, the biggest short position since December 2019.

Short-Term Outlook

Continue to look for volatility over the near-term as investors try to figure out the right mix of long and short positions in reaction to the vaccine news. They will be trying to figure out how the emergence of the vaccine will determine when the global economy returns to normalcy. This will influence when the market returns to balance.

Despite the bullish news, the market still face headwinds. For example, OPEC+ may elect to increase supply if a recovery seems imminent, and the vaccine will not be available widely until at least next year. Furthermore, the new Biden administration may choose to ease restrictions on Iran and Venezuela, freeing up more oil.

“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,” said Bjornar Tonhaugen, head of oil markets at Rystad Energy.