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

Commodities Nov 27, 2020 02:51PM ET
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© 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.

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

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Comments (4)
Alan Rice
Alan Rice Nov 27, 2020 4:46PM ET
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UP: (the direction of sanity).
TJ Theodore
TJ Theodore Nov 27, 2020 4:14PM ET
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Biden is gonna “End it”. Remember?
Barani Krishnan
Barani Krishnan Nov 27, 2020 4:14PM ET
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That's a political statement, though far restrained than the horse manure we regularly get from Trump. The virus will probably be with us well into end '21, maybe longer.
Rendy Pranata
Rendy Pranata Nov 27, 2020 4:14PM ET
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So there’s no turning back to 30$-ish price at all forever now?
Mike Latburg
Mike Latburg Nov 27, 2020 4:14PM ET
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sure he will, battery operated trains, airplanes, production of plastics, sounds so great.
David Acevedo
David Acevedo Nov 27, 2020 3:57PM ET
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I will say it again. Media trying to change the oil market. Why are these articles focusing on the one vaccine (AZN), did we forget there are other vaccines?
Barani Krishnan
Barani Krishnan Nov 27, 2020 3:57PM ET
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The media, or at least Investing, isn't trying to change anything, David. The fact is the market is going BANANAS over every Covid vaccine. Think what? People are going to jump on a plane or cruise ship without a care tomorrow? Speculation is one thing. Hype is another. The AZN vaccine is emblematic of the rest. There are issues/problems still unknown. Hedge funds, as usual, take leave on their senses when the herd is running.
Alan Rice
Alan Rice Nov 27, 2020 3:57PM ET
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A vaccine won't cure Us. Think about it.
David Bennett
David Bennett Nov 27, 2020 3:43PM ET
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keep the US rigs at an all time low.
Barani Krishnan
Barani Krishnan Nov 27, 2020 3:43PM ET
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Yaa, do that. Then maybe these gains will hold.
Courtney Alexander
Courtney Alexander Nov 27, 2020 3:43PM ET
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do u think the gains will hold?
Barani Krishnan
Barani Krishnan Nov 27, 2020 3:43PM ET
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For now, the path of least resistance seems to be up. It's going to take a while to shake the tree. Any setback on any of these vaccines won't be pretty.
 
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