The oil price was not alone in responding positively to this week’s encouraging news from Pfizer and BioNTech regarding progress with their mRNA COVID vaccine.
The MetalMiner 2021 Annual Outlook consolidates our 12-month view and provides buying organizations with a complete understanding of the fundamental factors driving prices and a detailed forecast that can be used when sourcing metals for 2021 — including expected average prices, support and resistance levels.
Stocks, oil surge on positive news on potential COVID vaccine
Stock markets surged as investors took heart from the firms’ optimistic media announcements.
The oil price has dropped back a little since yesterday’s high. At around $44.50/barrel, it is up 5% and still well supported.
Joe Biden’s win in the U.S. presidential election is something of a double-edged sword for the oil market.
The president-elect’s environmental policies could raise costs and, hence, stifle a rebound for the U.S. shale market. While supportive for prices, the possibility he would take the U.S. back into the European-U.S. Joint Comprehensive Plan of Action (JCPOA) deal with Iran is seen as a path to relaxing Trump-era sanctions. A return of the deal would ostensibly result in the release of Iranian oil onto the world market.
The reality is, although the new administration would like to get Iran back into an agreement to limit the refining of fissile material the process is fraught with complexity. Progress is likely to come slowly.
For the time being, neither dynamic is likely to have much impact before well into the middle of next year, if not the year beyond.
Supply and demand fundamentals
When the current exuberance subsides, the oil market will be back to supply-demand fundamentals.
While OPEC+ has made impressive strides in controlling output to support prices, there are numerous cracks in the wall.
Producers like Libya have been rapidly ramping up output, with production surging past 1 million barrels per day, according to OilPrice.com this week.
The firm went on relay comments from the ADIPEC 2020 conference in Abu Dhabi this week in which speakers, while optimistic about the benefits of new vaccines, were more focused on the demand destruction of oil markets this year. The expectation is it will take the better part of 2021 to recover.
Inventory is reportedly high — “glut” was the term used. While Saudi Arabia talked encouragingly about further tweaks to output, further substantial cuts in output appear to have limited potential.
Not surprisingly, opinions varied about where this would leave the oil price next year. However, Energy Intelligence, Platts and Argus reportedly forecast oil prices in 2021 in the high $30s to mid $40s per barrel. In short, they forecast oil prices won’t even hold onto current gains.
Citi showed a little more optimism, reducing its forecast by $5/barrel to $49 for 2021, Reuters reported this week. Citi cited OPEC+’s intention to relax its current 7.7 million barrels per day of cuts to 5.7 million barrels per day in January 2021.
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