By Alex Longley
While headline prices have gained on the growing prospect of an effective Covid-19 vaccine in recent days, an OPEC+ panel said the group — which is meeting again on Tuesday — should consider holding off on easing bumper production curbs by three to six months. Saudi Arabia’s energy minister said the market recovery is looking resilient in Asia, and a vaccine means there is light at the end of the tunnel.
The producer alliance is wrestling with a bifurcated demand outlook. In Asia, where consumption has recovered strongly from Covid-19, refiners have been snapping up barrels from the Middle East, U.S. and Russia. The structure of Oman futures on the Dubai Mercantile Exchange has surged into a bullish backwardation — indicating tight supplies — in recent days, as strength in the region’s crude market has grown.
But in Europe and the U.S., it’s a different picture. Covid-19 cases are growing and movement indicators, such as traffic data, have been declining, particularly in Europe. With OPEC+ balancing those concerns against resurgent Asian demand, a technical committee said the group should delay an output hike of almost 2 million barrels a day in January.
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“Oil prices have received a boost from a string of positive vaccine news lately,” said Jens Pedersen, a senior analyst at Danske Bank A/S. “The path toward a vaccine could include more restrictions, which will hit demand.”
With the prospect of a vaccine boosting sentiment in the near-term, money managers and other investors cut their bearish bets on WTI by the most since April last week, according to CFTC data. There was also the biggest uptick in short positions from swap dealers in seven months, usually a sign of producer hedging.
A delay to the planned OPEC+ output hike would also go some way to offsetting the increase in supply coming from Libya, which has climbed above 1 million barrels a day.
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