Oil Pulls Back Ahead Of The Weekend

Oil Video 11.12.20.

Brexit News May Be The Main Driver For Oil On Monday

Today, global markets found themselves under pressure from disappointing Brexit news and fears about another delay of the U.S. stimulus package.

As a no-deal Brexit has the potential to severely disrupt trade between Britain and the European Union, at least in the first months, it is a potential threat to oil demand in the near term.

According to recent reports and statements from officials, Brexit negotiations are heading in the wrong direction. However, markets continue to believe that negotiators will be able to reach a compromise deal by Sunday, judging by the recent price action in the Brexit-sensitive GBP/USD which initially declined to 1.3135 and then rebounded closer to 1.3250.

At this point, a no-deal Brexit is certainly not priced in by global markets. If EU and UK negotiators fail to reach a compromise deal, markets may find themselves under significant pressure on Monday.

For oil, a no-deal Brexit would be just another disappointing development on the European front. The recent data on the number of new coronavirus cases indicates that recent anti-virus measures in Germany and UK failed to stop the spread of the virus, so additional restrictions could be expected after Christmas. Most likely, these restrictions will put more pressure on oil demand in Europe.

Vaccine Optimism Continues To Provide Support To The Oil Market

Oil is pulling back a bit after yesterday’s upside move but continues to get support from traders who believe that mass vaccination will boost oil demand sometime in 2021.

The U.S. Food and Drug Administration (FDA) is expected to grant emergency use authorization for Pfizer/BioNTech vaccine in the next several days so that vaccination can begin on Monday or Tuesday.

While this is not a surprising development, the psychological effect of going from defensive tactics like lockdowns to active fight against the virus should not be underestimated.

In the upcoming weeks, vaccine enthusiasm will likely be the main supportive catalyst for oil, and near-term oil price dynamics will depend on whether oil market has to deal with multiple negative catalysts at once, a scenario which may break the current upside move.

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