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Oil market vaccinated against recession

Oil prices rise on news of successful trials of a coronavirus vaccine. There is still a long way to go before the oil market stabilizes, but the first good signs are already there: The surplus of fuel accumulated this year in storage facilities – from small barges to giant supertankers – is steadily decreasing. In the US, the pandemic is only getting worse, but in Europe, demand is recovering as the restrictions are lifted, and Asia continues to buy huge volumes of oil. Financial flows enhance the effect of the redistribution of supply and demand. Covid vaccines will also be a lifesaver for the oil market, which is expected to skyrocket in demand for transportation next year. “Oil is the cheapest asset to boost the economy,” said Amrita Sen, co-founder of Energy Aspects Ltd., a London-based consultancy. Given the gradual spread of vaccines, we expect investors to start returning to the oil sector and prices will continue to strengthen. ” On the Road to Growth Oil jumped after Pfizer announced successful test results. In some countries, demand has almost recovered. India’s largest refinery said its refineries are operating at full capacity and expect a v-shaped rebound in fuel consumption. Gasoline consumption in China and Japan, the second and fourth largest oil consumers in the world, are also at or near pre-coronavirus levels. According to the Bloomberg News Traffic Index, European motorists are back on the road as governments gradually lift national restrictions in countries such as the UK, Spain and France. Road traffic has skyrocketed as companies rebuild inventories and the Christmas shopping season is in full swing. Despite a recovery in demand, the Organization of the Petroleum Exporting Countries and its allies remain tightly constrained on production. The group canceled a planned increase in January supply of 1.9 million barrels per day and will instead add no more than 500,000 barrels per day each month to the market this year. The forecasts for the production of shale oil in the United States continue to decline. Oil moves at higher prices from the North Sea to the US shale center of Midland, Texas as consumers seek additional sources of supply. Saudi Arabia has maximized the cost of oil since August for Asia – the benchmark for global refiners. Hot money Changes in the market have also encouraged traders. For most of December, expiring oil futures trade at a premium to late-delivery futures in a price structure known as backwardation. As noted in the brokerage company Eagle Commodities, the purchase of such contracts, taking into account the price curve, indicates an influx of managed money into the market. The stronger the backwardation, the greater the profitability from the transfer of futures from one month to the next, which stimulates further purchases in a “self-reinforcing cycle”. In recent weeks, money has poured into the energy markets again. According to JPMorgan Chase & Co., by the beginning of December, the volume of energy contracts rose by $ 3.6 billion, thanks to the inflow of investments in Brent and West Texas Intermediate. Investors began pouring money into US ETFs, with capital inflows in the previous period amounting to nearly $ 400 million. Price Risks “Oil prices are now rising thanks to a promising future,” said Viktor Shum, vice president of IHS Markit Ltd. in Singapore. In the meantime, a gloomy coronavirus winter awaits us. ” There is reason to believe that $ 50 is the ceiling for oil at the moment. The price could spur producers from Baghdad to Oklahoma to increase production. Tensions already exist within OPEC +, and some of the cartel members are annoyed by the imposed supply restrictions. “A prolonged rally could make the OPEC + alliance much less cautious, which in turn will lead to a pullback in prices,” said analysts at Citigroup Inc., including Ed Morse. Backwardation, which attracts speculators, can add real barrels to the market, since the price structure is disadvantageous to traders who hold physical oil. Earlier this month, the supertanker loaded oil from tanks at the Saldanha Bay storage terminal on the west coast of South Africa before sailing to Asia. This is a reminder that there is still a lot of oil left from the spring surplus. Asian countries may suspend oil purchases at some point, especially with the start of the Chinese New Year in early February. Due to more expensive oil, the profitability of refineries will start to decline in this region. The standard Singapore refining process is now unprofitable using five of the eight oil grades tracked by Oil Analytics Ltd. For now, positive trends in fuel consumption support the desire of traders to buy both real and paper barrels. And it could attract even more hot money soon. In early 2021, a massive portfolio rebalancing will affect billions of dollars in commodity investment. According to Citigroup, this could raise $ 8 billion in Brent and WTI crude oil futures. “There has been a clear shift in the financial oil market,” said Michael Tran, an analyst at RBC Capital Markets. Speculators buy futures and hold them for fear of missing out on further rallies. Prepared by based on materials from Bloomberg On the subject: Brent crude for the first time in 9 months rose above $ 50 per barrel on expectations of mass vaccination Oil showed Teflon properties amid a very negative report on stocks Rates on gasoline price increases in the United States rose to 3.5 -month maximum

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