-The market disconnects further from right now.
-The glut is coming.
The disconnect continues. The price for Brent crude oil at one point topped $51 per barrel as the market placed bets on an unknown future. That rally largely ignores the coming glut of oil and products building as the pandemic rages on. Markets in general are in rally mode on the prospects of a vaccine, though we wonder how long the fundamentals can go ignored. While an eventual future will be “normal,” demand might not be enough for the coming flood of supplies.
Brent crude oil passed two milestones of sorts in intraday trading, passing the $50 per barrel mark during the morning session and leaping above $51 per barrel a short time later. The global benchmark was up about 2.8% as of 2:30 pm ET to trade at $50.21.
Crude oil prices at one point were up more than 4% in the morning session. The trove of negative news in Wednesday trading, namely a massive build in US crude oil inventories, was balanced by positive news on vaccines that could inoculate against COVID-19. Without the governor from inventories in place, crude oil prices were free to rally.
“Rotation into commodities to profit from post-COVID vaccines recovery; inflation hedge, bargain hunting,” Bloomberg market columnist Javier Blas stated on Twitter. “All coming into play with many asset managers rebalancing portfolios on January 1.”
The weak dollar, as usual, may also be supportive of commodities. Prospects of a vaccine may leave investors with more tolerance for riskier assets like oil, but we are facing an uncertain future given the novel genetic basis of the vaccines in distribution. Allergy warnings for the Pfizer/BioNTech vaccine, already available to the British and Canadian public, may complicate future distributions, as could the side effects from the double-dose inoculation.
First-time claims for unemployment in the United States, normally a big market mover, were at worst ignored and at best helped drag oil down from a great height. Initial claims for unemployment insurance jumped 137,000 for the week ending Dec. 5 to 853,000. That’s the highest level since September and the largest weekly increase in new claims since March. That’s troubling for a U.S. chamber of legislators marching steadily toward a holiday recess with no progress on a stimulus in sight. We discount the prospects of another package this deep into the lame-duck session. Last week, U.S. Sen. Fred Upton noted that if Congress can’t get something passed this month, “it won’t be till March till we actually get a bill.”
Analysts we spoke with throughout the day were decidedly skeptical of the rally, noting that equities are about the future and commodities are about the now. Right now, we’re still wounded by the quarantine economy and the glut is building. Adding insult to injury, Iran is looking to the incoming Biden administration in Washington as reason to ramp up oil sales to end users.
“In the first quarter, Iranian oil exports could reach at least 700,000 b/d, excluding condensate,” a senior Iranian oil official told Energy Intelligence.
With Wednesday’s market shocker of 15.2 million barrels built up in US storage, we would expect to see more barrels coming.
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