Oil Rally A 'Head-Scratcher' as Price Charges to Fourth Week of Gains

© Reuters.

By Barani Krishnan

Investing.com - Crude prices posted a fourth straight week of gains returning oil to a bull market ahead of an OPEC+ meeting where the industry’s most powerful were likely to agree not to raise production at this point to preserve the momentum.

“It remains a perfect storm of buying from CTAs while the  rest  of  the market either  is not  long enough or short and covering,” said Scott Shelton, energy futures broker at ICAP (LON:NXGN) in Durham, North Carolina. 

“The move we have seen in the market in terms of structure is a real ‘head scratcher’,” adds Shelton. “The idea of exploding Covid cases and a vaccine that will have a larger effect in six months than now only encourages us to sell the curve. What most of us cannot explain is the strength.”

New York-traded West Texas Intermediate, the leading indicator for U.S. crude, settled down 18 cents, or 0.4%, at $45.53 per barrel. 

London’s Brent, the global benchmark for oil, finished the session up 45 cents, or 0.9%, at $48.25.

For the week, WTI rose 8% while Brent gained 7.3%.

All in, crude prices have tacked on about $10 a barrel, or almost 28%, since the week ended Oct. 23, when it hit a low of $34.92. That technically positions oil in a bull market, based on the minimum 20% gain required from a bottom. 

Oil’s four-week rally came on the back of encouraging news on potential COVID-19 vaccines from AstraZeneca (NASDAQ:AZN) and others. However, questions have been raised over AstraZeneca’s “vaccine for the world,” with several scientists sounding caution over the trial results.

“While a successful vaccine rollout should break the link between infection and mobility, even then global oil demand will likely only reach its pre-pandemic run rate by mid-2022,” JPMorgan (NYSE:JPM) said in a note.

The gains in crude prices also precede a meeting next week by the 13-member Saudi-steered OPEC, or the Organization of the Petroleum Exporting Countries, with 10 allies led by Russia. 

The so-called combined OPEC+ group is leaning towards delaying next year’s planned increase in oil output, according to three sources close to the alliance quoted by the Wall Street Journal.

OPEC+ was originally planning to raise output by 2 million barrels per day (bpd) in January - about 2% of global consumption - after record supply cuts this year. Ministers of the alliance are to meet on Monday, after ground-laying talks on Saturday involving their direct reports.

“We reiterate our view that the alliance will likely choose to delay the 2 million bpd tapering decision on 30 November by a quarter, from January 1 to April 1,” JPMorgan added in its note.