An oil rally, spurred by vaccine progress, is running out of steam

NEW YORK: The oil market has risen nearly 40 percent in the past two months, pushing benchmarks to nine-month highs, in a euphoric response to progress on COVID-19 vaccines at investors think the end of the coronavirus pandemic is imminent.

Reality went back on Monday, however, with sales driven by the rise in UK issues. Disease rates are at their worst levels in several countries and vaccine distribution is proving to be slow, which means that the rounds of locks and travel restrictions continue – keeping fuel demand at bay. tight for several months.

That means most of the rally is already in the rearview mirror, traders and brokers said. Brent crude hit a nine-month high of US $ 52.48 a barrel last week, but recovered as much as 4per percent on Monday, while U.S. crude prices were above US $ 49 a barrel before slipping.

“Even when traders see stability, there is always something unexpected that could happen, and then inflated prices will appear on their glass legs,” said Rystad Energy oil markets analyst Louise Dickson.

The market has suddenly rallied in the spring, when a combination of Saudi Arabia-Russia price war and a crash in demand caused the Brent coronavirus epidemic hit below US $ 20 a barrel and threw times the future of the US into temptation, with their negative nature. US $ 40 per barrel.

The rally accelerated in the last two months of the year after several drug dealers announced strong responses to vaccine trials, sparking hopes that life would return to something akin to pre-pandemic norms.

But the fundamentals of the energy market are still worthy of caution, analysts said. The Organization of the Petroleum Exporting Countries (OPEC) and the International Energy Agency (IEA) revised their estimates for lower oil demand for the next year and the latter warned that global markets remain volatile.

Oil majors have reduced their expected capital expenditures for the coming year, and several companies have forecast demand. BP, in its year-over-year forecasts, does not see brewing processing reaching pre-COVID levels for a few years in its most optimistic scenario.

The normal gasoline margin of US $ 9.52 a barrel is lower than all but two of the last 10 years for this time of year.

“We believe that global refining margins are the single most important factor in crude prices over the next cycle,” RBC Capital Markets analyst Michael Tran said in a note last week.

OPEC and its allies this month agreed to reduce supply cuts, which will add more oil to the global market. U.S. producers are also adding supplies, as energy companies installed oil and natural gas rigs for the fourth week in a row.

Monday’s decline could also spur more hedge funds to download positions after accumulating into a bullish bet from early November.

Speculators, including hedge funds and other cash managers, have increased U.S. long-term crude income and options positions by more than 25 percent over the past six weeks. Technical indications are that Brent prices have recently been in range too much.

One clear point: corporate levels around the globe have been holding up as China continues to buy. China’s crude transmission in November rose 3.2per percent annually to a daily record.

Time spreads in oil, a sign of future market fundamentals, have accumulated, suggesting that supply will balance out early next year. (Graphic: https://tmsnrt.rs/3rjuZZG)

The distribution of U.S. crude futures in January-June has slowed in recent weeks. January futures are currently trading at 35 cents below June futures, compared to US $ 2 below last month’s June futures, a sign that investors now expect investments to decline in the first half of 2021.

However, for the end of 2021, June barrels are trading at nearly 80 cents a barrel higher than December barrels. That suggests too many people could return by the end of next year, especially as OPEC encourages production.

(Reporting by Devika Krishna Kumar and Stephanie Kelly; Editing by Lisa Shumaker)