Is a major oil price rally coming?

Commodities

More vaccine news and lighter US lockdowns could help oil stage a major rally in the coming months.

Oil trading

WTI and Brent is already holding steady at above $40 per barrel. Oil futures have risen 8% on their January levels so far.

Further price increases could be coming, primarily driven by major progress on finding a Covid-19 vaccine.

Monday 16th November saw American firm Moderna announce its vaccine is 95% successful in preliminary trials. And, unlike Pfizer’s, Moderna says its vaccine can be stored in regular refrigeration temperatures too.

A number of other pharmaceutical companies, including GlaxoSmithKline, Sanofi, CureVac, and Johnson & Johnson, are making headway on their own vaccines.

With mass vaccination, the pandemic, it is hoped, can be halted. Broad-market vaccination is forecast for mid-2021.

All the above could be good news for oil demand as long as progress remains constant.

OPEC predictions will be potentially validated by this news. According to the group’s predictions dating from July, demand could spike 25% by 2021.

That would mean oil demand would hit 29.8m barrels per day – higher than 2019’s volumes.

Speaking of OPEC, it is considering extending its production cuts to help stabilise oil prices. Currently, OPEC plans to taper production by 2m barrels per day in January. Now, it is considering no taper until the spring, with an extended timeframe of 3-6 months.

However, with the last round of OPEC cut compliance standing at 96%, commentators believe lower compliance for its proposed three-month production cut extension could happen.

The US is also looking at lighter lockdown measures as it battles its second Covid-19 wave.

Latest US oil inventory data says stocks stand at 488m barrels as of November 12th. New data will be published on Wednesday 18th November.

Natural gas

US natural gas storage rose by 8m cubic feet last week as reports of a bearish market roll in.

Warmer November temperatures in the coming two weeks are expected to keep reserves high and demand middling.

US citizens are using less gas-based heating as temperatures continue to stay warm this month, which in turn is keeping prices low.

The EIA forecasts that U.S. dry natural gas production will average 91.0 Bcf per day in 2020, down from an average of 93.1 Bcf per day in 2019.