There are no silver linings for oil prices this week. The positivity that helped prices reach and stay close to $70 per barrel earlier this month has now evaporated, giving way to concerns over vaccination campaign setbacks and crude stock levels.
Halting the application of AstraZeneca’s Covid-19 vaccine in several countries across the world has caused many more nations to debate a similar stance and has put the speed of the oil demand recovery at risk.
For oil demand to fully recover, a successful and rapid inoculation of the global population needs to take place. Before the recent setback, there was positivity that the campaigns under way were on the right track.
Now the speed of the oil demand recovery is again at risk and will largely depend, for the countries that are using the AstraZeneca vaccine and have paused it, on how quickly the vaccination campaigns resume.
But for the resumption of these campaigns some scientific proof is needed that the vaccines are safe and unrelated to blood clots, and providing that can take some time to research and verify.
The setback for AstraZeneca’s vaccine can prove to be even more damaging for oil prices if more countries decide to put their campaigns on ice. Traders will be following closely how the world reacts and any news on the safety of the vaccines can move oil markets going forward.
Oil prices are also dipping this week on market fears that US crude stocks rose again last week, on the aftermath of the bad weather that hit refineries earlier this month.
Crude stocks had been declining at fast rates and going back to a rise-mode is never positive for prices that normally benefit when less crude is available for the market, as that includes crude in storage.
If the market fears turn true and stocks are up again, then it will be difficult for Brent to hit again $70 per barrel very soon, at least not until some positive news come from the vaccination front.
Discounted Iranian oil have also been purchased in greater quantities over the past month by Chinese trading houses as global crude prices have rallied, and this is now coming back to haunt the bulls.
We have long estimated that Iranian flows have been far larger than tanker-tracking estimates have suggested, north of 1 million barrels per day, and this figure has now increased further, leading to vessel congestion outside Shandong and affecting demand for spot cargoes from Angola to Brazil.
Together the AstraZeneca vaccine debacle, there are reasons for traders to devalue the price of futures contracts for crude delivered in coming weeks.
Markets will be looking today to the usual API US oil inventory report for clues of whether the refinery demand recovery has actually gained speed from the unprecedented outages during the Texas freeze.
A draw in crude stocks would be the sign that could reinvigorate the bull’s confidence again, which would signal that refineries (demand) have recovered faster than the market anticipated. Yet another large crude stocks build could, conversely, bring another blow to prices tonight.
