The crude oil market keeps rallying. Over the past two weeks, Brent crude has climbed more than 11%, recovering from $40 to $44.50. The rise was driven by an overall improvement in market sentiment amid the COVID vaccine excitement.
Joining Pfizer (NYSE:PFE), another pharmaceutical company Moderna (NASDAQ:MRNA) reported 94.5% effectiveness of its experimental drug that protects against Covid-19. This optimistic announcement has added to growing confidence that newly developed vaccines may help end the pandemic and bolster the recovery of the global economy, as well as demand for hydrocarbons.
The oil prices were also supported by macroeconomic data from Asia. China's industrial production rose 6.9% in October compared to the same period last year. Retail sales in the PRC added 4.3% in October, year-over-year. Fixed-asset investment increased by 1.8% in the January-October period, accelerating from 0.8% growth in the first three quarters.
Despite the current recovery in prices, the oil market is still vulnerable to corrections. Experts point out that there is a long way between the development of an effective vaccine and the beginning of its practical use, which can take months. At the moment, over 55 million people around the world are infected with COVID-19. Among the most-affected countries are the United States, India, Brazil, France, Russia, Spain, and the United Kingdom.
Given the pace at which the virus is spreading, the likelihood of further lockdowns remains, dampening the prospects for global economic growth. Thus, if the pandemic keeps spreading at the same rate, the inevitable slowdown in economic activity will lead to a drop in oil demand by the end of 2020 by more than 9.5 million barrels per day. In this scenario, the crude oil market will face another bearish rally.
The inaction of the OPEC + Joint Ministerial Monitoring Committee says in favor of potential sell-off. As of the last meeting, the committee made no recommendations to cut oil production in 2021. Traders, on the other hand, expected the OPEC + to suggest that the alliance countries extend their output cuts at least until the end of the first quarter of 2021.
The next scheduled meeting of the OPEC + Joint Technical Committee will be held on Dec. 16, the Ministerial Monitoring Committee’s video conference is scheduled for Dec. 17. Until then, the overall fundamental background remains bearish which may well push Brent oil prices to $40 or even lower.