Crude oil futures have been rising in the past few weeks, going against the usual trend of taking a profit ahead of the Christmas holidays. WTI traded as high as $ 49.20 on Friday’s session with Brent crude calling at $ 52.40, levels they last spoke to in February before the oil price crash.
Naturally, the big question for most traders at this stage is whether this rally has legs to continue into the Christmas period and even beyond.
On a purely technical basis, crude oil has been making higher levels on the weekly charts since April. The latest peak came on Dec. 10 with the next expectation around the $ 50 psychological level on NYMEX futures. The next mid-February technical resistance levels are high at $ 54.50 plus the 2020 peak of $ 65.65.
The oil and gas criterion, SPDR Assets Select Power Division (XLE), has gained 12% over the last 30 days compared to a 4% gain with the S&P 500.
Here are three main reasons why we remain bullish on the oil market.
# 1. Covid-19 vaccines A big reason is that the energy sector has emerged as the top player over the last few weeks a collection of potential Covid-19 vaccines to be available.
Roll the Pfizer-BioNTech The mRNA-based BNT162b2 vaccine was launched in the United States last week. The vaccine reached long – term care facilities a few days ago with Walgreens looking to expand the program to nearly 3M residents and staff at 35,000 long-term care facilities. So far, but two They were reported to have reported a very severe allergic reaction to the vaccine, both middle-aged health workers. However, health experts have reiterated that the vaccine is still safe for the public. Related: Oil, Gas Rigs rising for fifth week in a row
The path of the vaccine so far suggests that the majority of the American population is likely to receive the vaccine by the end of February, better than a third of the population ‘s target population. Dr. Moncef Slaoui, head of Operation Warp Speed, earlier projected.
Meanwhile, the EU plans to roll out its vaccination program on 27 December 2020. A few days ago, Moderna Inc. to name that the European Commission had used its option to purchase an additional 80M of their COVID-19 vaccine candidate, extending the company’s total order commitment to 160M doses.
The early success of the distribution programs has brought enough hope into the oil markets with even conservatism BP Plc (NYSE: BP) looks back at their previous predictions that we could have surpassed peak oil with the company now saying that oil demand may not go to around 2030.
# 2. Incentive pack After all the predictions of sadness and gloom, the global economy seems to be recovering from the devastating pandemic at cookie faster than expected. Indeed, a handful of sectors of the U.S. and other economies have kicked back to pre-crisis activity levels. Top reason to get over it quickly: A unique motivational package.
Shortly after the World Health Organization (WHO) declared Covid-19 a pandemic worldwide, governments everywhere showed huge monetary and fiscal stimuli (more than $ 15T worldwide) in effort to reduce economic output. The U.S. federal government intervened with a wide range of measures, including $ 2.3 trillion package designed to support financial markets, state and local governments, employers and households.
Congressional leaders finally reached a deal on another $ 900 billion aid package on Sunday, after ruling to avoid a government ban on Friday by closing passing a two-day extension of funding to keep groups running through Sunday nights. Congress voted on the new stimulus Monday night and passed.
Related: Largest Energy Bill of a Decade passed
A cross-section of analysts have warned that the generous packages could come back to bite the markets. New York Times bestselling author and founder of ‘The Bear Traps Report’ Lawrence ‘Larry’ McDonald has warned of ‘cobra effect’ with which the incentives designed to save the economy will instead ” …causing the economic collapse of hyperinflation.”
Nevertheless, government stimulus has been an effective tool, at least in the short term.
# 3. OPEC + agreement
Two weeks ago, OPEC + members met to discuss future production plans with the production cuts coming to an end at the end of the year.
The bulls hoped that the oil-producing cartel would extend the normal production cuts by 7.7 million barrels per day for at least another three months. Instead, they got a good boost after OPEC + announced it would increase production by 500,000 barrels per day starting in January, effectively reducing total output cuts at the beginning of 2021 to 7.2 million bpd.
Surprisingly, oil prices have been going up since its announcement after an initial decline. One energy analyst explains why:
“The nightmare situation that feared the market was not 500,000 bpd since January, but that was not what was expected weeks ago. Markets are now responding positively and prices are recording a small increase with an additional 500,000 supplies not lethal for balance, ”Said Rystad Energy senior oil market analyst Paola Rodriguez Masiu.
In other words, the market is pleased that the 23-member group seems to be using caution with its representation.
Another encouraging sign: Major influencers, Saudi Arabia and Russia, seem to be reading from the same page this time.
With the hard lessons of the April oil price crash still fresh in mind, it is unlikely that OPEC + will return to a senseless market segment and price wars anytime soon so there is a risk of thinning the markets again.
By Alex Kimani for Oilprice.com
More top readings from Oilprice.com: