Oil Price Fundamental Weekly Forecast – Weighed Down as Vaccine Optimism Fades, Demand Destruction Lingers

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures finished sharply higher last week with most of the gains attributed to a huge price surge last Monday after Pfizer said initial data from a large study showed its COVID-19 vaccine was more than 90% effective.

Then spent the rest of the week trying to defend those gains as market optimism over the vaccine gave way to concerns over the logistics of its eventual roll-out, though other factors contributed to the two-sided trade.

Last week, January WTI crude oil settled at $40.40, up $2.91 or +7.76% and January Brent crude oil finished at $42.78, up $3.33 or +7.78%.

Other catalysts driving prices higher included an escalation in COVID-19 cases, a bearish government inventories report and the possibility that OPEC+ may make moves to delay their planned output cuts.

Additionally, the International Energy Agency (IEA) predicted lower demand, Libyan production continued to rise as well as U.S. output with another rise in the number of producing oil rigs.

Pfizer Announces Promising COVID-19 Results

On Monday, Pfizer said initial data from a large study showed its COVID-19 vaccine was more than 90% effective, sending crude oil prices higher on the notion the economy would return to pre-pandemic demand levels sooner than expected.

Pfizer and German partner BioNTech SE, the first drugmakers to show successful data from a large clinical trial of a vaccine, said they expect to seek U.S. emergency use authorization for the drug later this month.

Traders Expect OPEC+ to Trim Output Curbs

Analysts said fears that the rise in coronavirus cases could but a dent in global demand have led traders to believe that OPEC and its allies may hesitate to loosen output curbs as planned in January.

OPEC+ is due to hold a Joint Ministerial Monitoring Committee next week, which will give some indications of what the producers may decide at the next ministerial meeting on December 1.

Algeria’s energy minister said last week that OPEC+ could extend the group’s current oil production cuts in to 2021 or deepen them further if required.

COVID-Related Demand Destruction Caps Gains

An escalation of COVID-19 cases in the United States took center stage last week as new coronavirus infections in the U.S. and elsewhere hit record levels. Some areas are tightening restrictions to contain the spread, dampening the prospect of a near-term end to the global health crisis.

Additionally, the International Energy Agency (IEA) threw cold water on the vaccine news when it said on Thursday that global oil demand is unlikely to get a significant boost from the rollout of vaccines against COVID-19 until well into 2021.

US Government Reports Unexpected Crude Oil Rise, Private Report Shows Drawdown

U.S. crude oil inventories rose unexpectedly last week while gasoline and distillate stockpiles fell, the Energy information Administration (EIA) said on Thursday.

This week’s inventories reports also offset each other. Late Tuesday, the American Petroleum Institute’s (API) weekly inventories report showed a crude stockpile decline of 5.1 million barrels. But Thursday’s EIA report showed a bigger than expected increase in stockpiles, while traders were looking for a drawdown.

Libyan Production Rises While US Adds More Rigs

Libyan oil production has risen to 1.2 million barrels per day (bpd), a Libyan oil source told Reuters, up from the 1.0 million bpd reported on November 7 by the country’s National Oil Corp.

Baker Hughes on Friday reported that the number of active U.S. rigs drilling for oil rose by 10 to 236 this week. That followed increases in each of the last seven weeks. The total active U.S. rig count, meanwhile, was up 12 to 312, according to Baker Hughes.

Weekly Forecast

We see a sideways-to-lower trade as long as COVID-19 cases continue to rise and further lockdowns and restrictions remain imminent.

The vaccine news was bullish, but there are too many questions that need to be answered before it will have an impact on demand. Furthermore, experts are saying conditions are likely to get worse before they get better and that the crude oil market is unlikely to see any benefit from a COVID-19 vaccine for several months.

Additionally, The OPEC+ plan to postpone production cuts has been out for several weeks and have been absorbed into the markets.

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