Oil Price Fundamental Daily Forecast – Vaccine News Fuels Massive Short-Covering Rally

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures soared over 8% on Monday, putting it in a position to post its biggest daily gain in six months. Concerns that a resurgence in coronavirus cases would derail the global demand recovery took prices down recently and optimism that promising results from a COVID-19 vaccine took prices higher on Monday.

At 20:21 GMT, December WTI crude oil futures are trading $40.42, up $3.28 or +8.83% and January Brent crude oil is at $42.54, up $3.09 or +7.83%. Besides the price jump, contracts traded more than 120% of last session’s volume.

Traders were also celebrating the weekend election results that named Democrat Joe Biden the winner in the U.S. presidential race. Gains may have been limited, however, because the surge in prices may have dampened anticipated plans by OPEC+ to postpone its planned reduction in output cuts.

Vaccine News Diminishes Demand Concerns

Concerns over lower demand were softened somewhat on Monday after Pfizer said its experimental vaccine was more than 90% effective in preventing COVID-19, based on initial data from a large study, a victory in the battle against a pandemic that has forced lockdowns around the world and led to a drop-off in fuel demand.

OPEC+ May Be Willing to Adjust Production Cuts

Saudi Arabia said an OPEC+ oil output deal could be adjusted to balance the market. The kingdom’s energy minister Prince Abdulaziz bin Salman said the OPEC+ deal on oil output cuts could be adjusted if there was consensus among members of the group, increasing the prospect of tighter supplies and higher oil prices.

OPEC+ is currently cutting 7.7 million barrels per day (bpd), and is considering reducing those cuts to 5.7 million bpd from January. If OPEC+ maintains the current curbs on output, it would tight supply and lead to higher prices.

If the virus proves to be effective, there may be no need to make this move.

Short-Term Outlook

We saw a nice rally on Monday but it may have been short-covering by traders spooked by the vaccine news. We’ll know more if there is a follow-through move. We don’t even know yet how soon a vaccine could be administered and when it would take place. Meanwhile, demand would continue to be lost as the vaccine spread. This opens up the idea of spreading the market with the deferred futures contracts rising faster than the nearby futures contracts.

Finally, several analysts are saying President Biden could relax measures on Iran and Venezuela, which could bring more oil onto the market, which would make it even more difficult to balance supply with demand.

For a look at all of today’s economic events, check out our economic calendar.