Christmas came early for oil prices as a combo of global medical, fiscal and geopolitical developments this week is helping Brent recover the 50+ dollar level it achieved last week.
The emergency FDA approval of the Pfizer-BioNTech vaccine in the US comes as the cherry on a bullish cake that was baking since the beginning of this month.
Bulls have expected that the approval would be expedited and seeing it already in the bag shields earlier gains and makes room for more as millions of deliveries are expected to already be distributed by Wednesday.
It may take a while for the vaccine campaigns to be applied to sufficient global numbers of people for jet fuel and road fuel demand levels to recover, yet the quicker approvals and vaccine distributions come, the quicker we will see oil markets recover in future.
The oil price rise is not only linked to the vaccines today though. Political stability in the US seems to solidify now, after the Supreme Court dismissed another suit to overrule election results in key swing states and the Electoral College is finally meeting today to vote Biden into the Presidency and put the final brick in place.
Market confidence is also coming by progress in US stimulus package negotiations, as the discussed level of a $908bn deal Is sure to send oil demand levels higher if confirmed.
Last but not least, it’s one of those weeks that oil enjoys a boost from the usual hone of the Middle East. Traders have since years now used to tensions flaring in the region and when that happens oil markets are ticking up.
Today another round in the Middle Eastern saga of tensions is shaping a supply risk for oil. An explosion on a tanker in Saudi Arabia has caused concerns for stability in the major oil hub of Jeddah and for overall traffic security in the region.
The market remembered the 2019 days when the Gulf of Oman hosted bomb attacks on tankers, which caused a major international incident and sent oil prices through the roof. Should the incident in Jeddah escalates, it can offer a major additional upside for oil.
Looking forward, hedge funds and other money managers have continued to pour money into the long side of the market.
Net long positions by hedge funds in ICE Brent has risen to the highest level since late-February when Covid-19 was an underappreciated threat to global oil markets, an optimistic indication.
