It is not every day that the market ignores weekly builds of US crude inventories, and the latest one was of a significant size as well.
Seeing prices moving up again today over $49 is a clear indication of the increasing market confidence towards vaccine campaigns.
Traders welcomed indications that vaccinations campaigns will start in the US and Canada in the next few days, a development that -adding up to the UK’s rollout – is way quicker than most of the world expected just weeks ago.
Fast-tracking vaccinations is raising hopes that oil demand will benefit quicker and the North American markets are major consumers.
Prices are also rising on the back of a relief deal that OPEC+ sealed last week to only hike output by 500,000 bpd in January instead of four times the amount.
A weaker dollar is also helping the price rise, but it is not the only mover. Chinese and Indian refineries’ continued strong buying of 1Q cargoes, which is also helping prices today. Physical buying from the key demand centers is king.
Traders are looking at supply too and any event that has the potential to slash it temporarily can affect prices. An attack at an Iraqi oilfield on Wednesday, although didn’t affect output, raised some eyebrows and was noted as a potential supply hazard.
The move today begs to be questioned due to the rise of US crude stocks, but money managers seem to be less and less concerned about a negative correction in oil, pushing for an upside in price instead.
The risk is that if this buying spree goes too far, prices could need an even deeper and wild correction in the event of disappointing demand developments in the first quarter of 2021.
A downwards adjustment may be inevitable though as the consequences of the current lockdown wave start getting quantified. Nevertheless, news on the speed of vaccine rollouts are for now the strongest market movers, they are after all what the world was longing for since a very long time.
