Tuesday’s prices returned to losses after a brief rise that defied fundamentals. Although prices started trading lower, which is logical under the current oil demand trends, enthusiasm over the start of the first vaccination rollout in the UK took over and erased losses for a while, before prices swinged back.
Adding to hopes that starting vaccinating is finally the beginning of the end of this pandemic, the market initially also brushed away some supply fears going forward.
Traders realized that for Iran to actually boost exports outside Asia, it will likely take some time, closer to mid-2020, but by then we will already be at a supply deficit momentum, as demand is expected much stronger.
However, short-term demand concerns due to the current lockdown spree quickly returned and prices are on the red again, waiting for some sign from coming US crude storage reports.
As supply expectations are now firmer after the OPEC+ meeting, at least for January, prices are not expected to deviate much for a while and swings will be focused on ‘lighter’ market events, even if these are mostly of psychological value – such as the first vaccinations in the UK.
Indications of how global balances are doing are also important and storage levels are expected to again point towards where prices should be. API numbers later in the day and official numbers afterwards will likely define the weekly price direction.
Anything else than seasonal crude stock draws in December could raise trader’s eyebrows and move prices further.
For the moment, news screens are again piling up with Covid-hospitalization records and fatalities in the US, new distancing measures across the globe and a delay in the deadline for a much needed US economic stimulus bill in Congress.
At a statement level, Iran has also said it is preparing to boost oil exports to full capacity within three months, adding to the bearish cocktail. However, we would be surprised to see Iranian exports allowed to rise significantly under the current US sanctions regime, but Asian refiners are keen to take on additional cheap Iranian medium-sweet barrels into their complex refineries next year. So the market is not paying too much attention to the Iranian ambitions yet, and also knows the Iranian presidential elections in June can be a necessary milestone to pass for the Biden administration before any new deal can be struck.
Finally, the market still expects a supply deficit to emerge from the summer of 2021 judging by the shape of the Brent forward curve today.
From now towards the summer months, the curve is now upwards sloping which signals that the market sees comfortable supply-demand dynamics in the first half of 2021 – at least for the moment.
