The vaccine euphoria is here to stay among traders, who didn’t let go of Monday’s oil price gains today.
Oil rose for a second day on hopes that a new vaccine will finally bring back some normality to the market and will be the catalyst for oil demand to really recover and avoid another pandemic wave.
Covid-19 waves were more of a tsunami for the oil market and a vaccine has been what markets have been praying for since the beginning of this downturn.
Although it will take time, several months, to actually apply this vaccine globally – and that only if it gets the relevant approval – the enthusiasm is too grand to brush away in the course of a day.
The market trades on this enthusiasm, not really currently pricing in the fact that short-term demand will see no benefit from the vaccine.
Although the vaccine-news dust settled this morning, the conclusion in the market still seems to be “this is promising”. Yes, prices have managed to hold on to most of yesterday’s gains, but all that glitters ain’t gold, or at least not so quickly.
Traders also know that a widely available vaccine will take months. The reality is that oil fundamentals won’t budge an inch until OPEC+ decides the supply side of the equation on 30 November/1 December.
This reality will soon kick in and prices are expected to let go of some gains when the lockdown-caused demand destruction of 2020’s fourth quarter takes central stage again.
Today’s optimism is also visible across the oil “score board”: The crude term structure is strengthening, implied volatility is coming down (less demand for downside option protection) and oil prices are up.
On another note, in coming days, we would not be surprised to see a reaction to how interestingly-timed the news release from Pfizer and BioNTech has been. Not making any assumption here, but surely this will be discussed in the offices of a certain ‘non-colorful’ house.
A last note, the market enthusiasm is on, but traders may face a quick reckoning with the current reality later today, when last week’s expected US crude inventory levels get announced by the API.
The demand destruction amid the increasing global supply timing will make itself visible this month in several occasions and the spectacle will not be pretty for a global market whose oil storages are full with oil.
A viable short-term price relief, in our view, could only come from possible bullish indications that the OPEC Joint Market Monitoring Committee meeting could hint next Tuesday.
