Crude rises on expectation of tamer US lockdowns, Asian trade agreement

Singapore — 0237 GMT: Crude prices rose in mid-morning trade in Asia Nov. 16, as the market was comforted by the strong possibility that any new lockdowns in the US will be less severe than the nationwide lockdowns seen in spring, with the signing of the Regional Comprehensive Economic Partnership (RCEP) also providing a boost to sentiment.

At 10:37 am Singapore time (0237 GMT), ICE Brent January crude futures were up 41 cents/b (0.96%) from the Nov. 13 settle at $43.19/b, while the NYMEX December light sweet crude contract was up 50 cents/b (1.25%) at $40.63/b.

January ICE Brent and December NYMEX crude futures surged 8.44% and 8.05% higher in the week ended Nov. 13 to settle at $42.78/b and $40.13/b, respectively, on reports of progress in the development of a COVID-19 vaccine.

Market analysts attributed the upward trajectory in oil prices this morning to rising hopes that if any lockdown measures are implemented in the US, they will not be as strict as the ones seen during the first wave of the virus in spring.

"Oil is trading higher at the open after Dr. Vivek Murthy, a former US surgeon general [who is also one of Joe Biden's top advisers on the virus], told "Fox News Sunday" that any lockdown at this stage of the pandemic would look different than the sweeping closures which states enacted in the spring to suppress the virus," said Stephen Innes, chief global market strategist at axi, in a Nov. 16 note.

"Last week, traders speculated that the US could move into very rigid lockdowns over the holiday season, impacting road fuel demand over Thanksgiving and Christmas, so we are seeing some of those shorts give way at the open," Innes added.

Margaret Yang, strategist at DailyFX, echoed the above sentiment, and told S&P Global Platts that "Biden's advisory suggesting that [they are] reluctant to implement harsh nationwide lockdowns is good news for energy demand in North America. This is one of the major headlines driving prices higher this morning."

Yang added that the signing of the RCEP -- the world's biggest trade agreement involving 15 nations and covering almost a third of the world economy -- and the weakening US dollar also contributed to the bullishness seen in the market this morning.

"The sentiment in Asian markets is positive this morning, and this is also because of the signing of the RCEP trade agreement on Nov. 15, which is expected to provide a long-term boost in the region's economic activity," Yang said. "Last but not least, the falling US dollar this morning may have provided some additional support to oil prices."

However, despite the uptrend in prices this morning, and even without strict US lockdowns, both Innes and Yang surmised that the oil complex will likely remain pressured in the near-term by coronavirus-induced demand concerns, especially since COVID-19 cases in both Japan and the US have been rising unabated, and since most of Europe remains under some degree of lockdown.

ANZ analysts said in a Nov. 16 note: "European motorway traffic is down almost 50% in recent weeks in some countries (such as France) as lockdown measures are increased. [Even though US authorities have been reluctant to implement lockdowns,] people movement is slowing, with vehicle miles traveled on US highways falling 3% w/w in the week ending Nov. 8."

"Fundamentals are still bleak and are unlikely to support oil prices, which I believe will consolidate at around $40-$42/b in the near term," Yang concluded.