Vaccine Could Be “Game-Changer” for Oil Demand
November 10, 2020
The energy market had a strong reaction to the upside on the Pfizer news about their coronavirus vaccine. A vaccine is something very critical to energy as it will allow demand to come back. Despite yesterday’s news nothing has change in the current outlook for supply and demand. Energy still has an abundance of supplies that need to get worked down to bring them more into balance and demand has been reduced due to COVID and near term could be get worse. For the medium term these issues have not gone away by the vaccine news from yesterday. Here is a comments from a JPMorgan research note speaking to this point: A viable vaccine is unequivocally game-changer for oil – a market where half of demand comes from moving people and things around. But, as we have written previously, oil is a spot asset that must first clear current supply and demand imbalances before one-to-two-year-out prices can rise. Our current demand forecast still embeds a strong second half of 2021 recovery on the back of vaccine distribution, but even with that we projected global oil demand reaching its pre-COVID run-rate only in December 2021.
Yesterday’s buying may have just jumped the energy market up into a new higher trading range. We will have to wait and see if the market can establish a lower support level to create a new range. If the equites markets come under selling pressure energy prices are likely to follow. This is also the time of year when seasonally the market can see downside into the end of the year. Will this hold true this year or will COVID impact some of the normal seasonality.
OPEC’s oil output rose by 210,000 bpd in October up to a total of 37.27 million bpd according to a survey by S&P Global Platts. This is not good news for those hoping for continued reduced production from OPEC to help balance the market.
Key members of OPEC are wary that strains in the OPEC+ alliance could reemerge with Joe Biden as US President and would miss President Donald Trump who went from criticizing the group to helping bring about record oil output cuts. President elect, Joe Biden, could modify US diplomatic relations with three members of OPEC, de facto leader Saudi Arabia, and sanctioned countries Iran and Venezuela, as well as, with key non-OPEC producer Russia. Strict enforcement of US sanctions on Iran and Venezuela has kept millions of barrels of oil per day off the market, and if Biden should relax measures on either in years to come an increase in production could make it harder for OPEC to balance supply and demand.
Libya’s National Oil Corp said the country’s crude oil output has increased to 1,036,035 bpd from 850,000 bpd a few days ago.