Oil Rallies As An Effective COVID-19 Vaccine May Be A Game-Changer

Oil Video 09.11.20.

Oil Tries To Settle Above The $41 Level

Oil is one of the biggest winners from today’s vaccine announcement from Pfizer and BioNTech. An effective vaccine will certainly boost economic recovery and enable mass travel, which will be very positive for the rebound of oil demand.

There are several important questions for the oil market. The first question is whether other vaccine developers will have similar success like Pfizer and BioNTech. The second question is when a vaccine (or, most likely, a group of different vaccines) will be deployed in a sufficient quantity to stop the pandemic.

While financial markets are very focused on future developments, oil is a physical product whose fate still depends on the realities of day-to-day demand.

Vaccine news are bullish for oil in the long-term, but it remains to be seen whether oil will be able to get to higher levels in the near term at a time when demand is under pressure due to lockdowns in Europe.

Saudi Arabia Signals The OPEC+ Deal Could Be Adjusted If Necessary

Saudi Arabia’s Energy Minister has recently stated that OPEC+ deal could be adjusted if all OPEC+ members agreed that it was necessary to make changes.

It looks like current analyst consensus implies an extension of current oil production cuts for the first quarter of 2021. However, OPEC+ may provide additional support to the market by keeping current production cuts for the first six months of 2021, which will be bullish for oil.

The recent vaccine news do not change the near-term outlook for oil demand since any successful vaccine will still need months to be deployed. Thus, OPEC+ will be forced to provide additional support to the market to offset the negative impact from European lockdowns, but its exact decision is unclear at this point.

Meanwhile, the recent Baker Hughes Rig Count report indicated that the number of U.S. rigs drilling for oil increased by 5 to 226. Ultimately, the increase in the number of oil rigs will lead to an increase of U.S. oil production, which may boost crude inventory levels.

This week, API Crude Oil Stock Change report will be published on Wednesday while EIA Weekly Petroleum Status Report will be released on Thursday, so we’ll soon have a chance to evaluate the latest crude inventory dynamics.

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