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The prospect of a coronavirus vaccine has transformed how global oil traders are evaluating the market’s prospects for the second half of 2021 and it appears to be getting even brighter for oil depending economies like Nigeria.
According to Bloomberg, headline Brent oil futures surged above $45 a barrel for a time on Wednesday, a 15% increase from where they ended last week.
But that’s a price for supplies in January when the direct impact on oil demand from any vaccine is likely to be limited because of the time it would take for an immunization program to be rolled out.
What’s been more revealing is what traders call deferred time spreads. These gaps in price between contracts in the future — which serve as a gauge of expectations for market strength – they are soaring. June 2021 is now trading at about 55 cents a barrel below December 2021. Late last week, it was at a $1.35 discount.
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“This is a sigh of relief to some extent by the market,” said Karim Fawaz, who leads the energy advisory service at consultant IHS Markit.
“The short-term is still quite challenged, demand is looking quite weak. The second half of 2021 is when we expect to see that demand recovery start to take hold.”
On Monday, Pfizer Inc. and BioNTech SE said a vaccine prevented more than 90% of symptomatic infections in a trial of tens of thousands of volunteers. Oil was just one of many markets that surged.
The optimistic view of the oil market in 2021 is shared to varying degrees across Wall Street. Crude markets are likely to see sharply higher prices next summer as the demand outlook improves, Goldman Sachs Group Inc. wrote in a report this week.
JPMorgan Chase & Co. anticipates global oil demand will surpass its pre-Covid levels in December next year.
The uncertain timing of a vaccine rollout, and accompanying demand rebound, complicates the picture for Organization of Petroleum Countries and allied producers as they try to avoid a glut of crude from the building.
They meet in less than a month to discuss whether to start adding barrels to the market in 2021 as they had previously planned.
Though optimism is building, there are still plenty of hurdles. Some regions, most notably Europe, are currently going through second lockdown measures, eroding their demand.
High-frequency traffic data suggest that taken as a whole, a rebound in road traffic appears to have stalled. There is also the more lasting economic hit that the virus has dealt to economies to consider.
It’s a similar picture in the U.S. market too.
The difference in price between December West Texas Intermediate futures for 2021 and 2022 — a popular trade among oil-focused hedge funds — has also reached the narrowest since March.
A big part of the strength has been producers hedging their forward output, effectively putting pressure on later prices while more immediate ones strengthen.
