Oil Price Comeback Seems Unstoppable

Oil Price Comeback Seems Unstoppable
The oil price comeback seems unstoppable since news of positive vaccine trials arrived.

The oil price comeback seems unstoppable since news of positive vaccine trials arrived.

That’s what Rystad Energy’s head of oil markets, Bjornar Tonhaugen, said in a statement sent to Rigzone on Tuesday, adding that the rise has sidelined other short-term concerns, including lockdowns and increasing crude inventories.

“The market is taking a big short-term gamble here, demand is definitely not doing any better for the moment due to the vaccine news, lockdowns are keeping road and jet fuels unused and one would wonder how sustainable the price gains are,” Tonhaugen said in the statement.

“Even if some vaccinations begin in late December, this won’t immediately help oil demand until the remedy applies to large volumes of people,” he added.

“Oil demand will still need crutches going into 2021 and the market needs to see decisiveness from OPEC+ in the coming meeting. An extension of the current production levels is needed, but although it is not yet official it is widely expected and priced in, which involves a certain risk,” Tonhaugen went on to say.

The Rystad Energy representative noted that, as the rally continues in the oil market, both flat price and time spreads continue to strengthen further.

“In just a matter of two trading days, the Brent futures curve has gone from pricing in a balanced-to-oversupplied market to pricing in a tight market between January 2021 through March 2022,” Tonhaugen said.

“The futures curve went yesterday into so-called backwardation between these two points in time, where earlier-dated contracts are priced more expensively than later-dated contracts, which signals that supply-demand balances will be tight/in deficit over the time period,” he added.

“We believe positive vaccine news and swift deployment views are behind a significant part of this move in the curve, supported by increasingly firm beliefs by the market that OPEC+ will extend its current output targets for the 1Q 2021,” Tonhaugen continued.

Rystad’s head of oil markets warned, however, that this puts the market at risk of great disappointment if OPEC+ fails to do the “right thing” come Monday.

To contact the author, email andreas.exarheas@rigzone.com


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