The GERM Report

-Goldman is calling this rally ‘vaccine trade’

-Is Brent back in contango?

So-called vaccine trade continued to put wind in the sails of crude oil during the Friday session, with U.S. crude becoming the latest to make a run at $50 per barrel. While French President Emmanuel Macron became infected with COVID-19, we saw U.S. lawmakers getting vaccinated against infection in public on Friday. Elsewhere, it seems like the prospect of a no-deal Brexit has long since been baked into the market. Meanwhile, it looks like a contango structure is building up in contracts so we’re growing even more curious about the potential for a glut.

The rally continues in relentless fashion. On the week, Brent is on pace for a gain of about 4.5%, well above our expectations, and looks to have a temporary hold on the psychological level of $50 per barrel. As of 3 p.m. ET, the global benchmark was up 1.34% to trade at $52.19 per barrel.

Oilfield services company Baker Hughes reported U.S. rig counts increased by eight from the previous week to come in at 346 for the week ending Dec. 18. That’s the highest overall rig count since May and should serve as an indication that the rumors of shale’s demise are greatly exaggerated. Most of the rig gains came from the Permian shale, where Platts told us the break-evens are close to around $40 per barrel.

On Friday, the U.S. Food and Drug Administration recommended emergency-use authorization for the Moderna vaccine against COVID-19, the second such drug in the United States. Friday saw top officials from U.S. Vice President Mike Pence to Senate Majority Leader Mitch McConnell get their vaccines in public. That’s a boost in confidence for a country that has consistently charted record-high infections for most of the pandemic. Add to that are the tenuous prospects of another round of stimulus for the U.S. economy.

“Just received the safe, effective COVID vaccine following continuity-of-government protocols,” McConnell said Friday from his Twitter account. “Vaccines are how we beat this virus. Now back to continue fighting for a rescue package including a lot more money for distribution so more Americans can receive it as fast as possible.”

Lawmakers are expected to work through weekend on hammering out a deal. If they fail, millions of those in the United States risk losing out on unemployment insurance, bars and other business could lose some federal loan support and state and local governments would be left tightening their purse strings.

In Europe, it looks like we’re going to have a no-deal Brexit as neither side can agree on fishing and the so-called level playing field, equitable trade rules across the region. It’s estimated that a messy divorce could decrease British GDP by as much as 4% over 10 years, while Europe would only see a contraction of around 0.7% during the period. Either the idea of a messy divorce is baked in, or it’s a risk brewing beneath the radar.

Reporting from the Bloomberg news agency, meanwhile, finds Brent moving back into contango, a trade structure consistent with pending supply-side pressures. That should throw a bit of cold water on what Goldman described as a “vaccine trade” bull market. Goldman said it expected oil to move back into the oh-so-fun range-bound situation we were in for the June-November period when oil just wouldn’t move. And pointing to the 885,000 new first-time claims for unemployment insurance in the United States last week, London oil broker PVM said in a note emailed to The GERM Report that crude oil may be running out of steam. Bullish momentum is “taking a breather,” wrote analyst Stephen Brennock, but will continue to see support from fiscal stimulus and vaccine distribution.