Front-month WTI settles above $48/b for first time since February

Front-month NYMEX WTI settled above $48/b on Dec. 17 for the first time since February amid a bevy of bullish news on the new vaccine rollout, a potential deal on a US coronavirus stimulus package and optimism on a post-Brexit trade agreement finally being reached between the United Kingdom and the European Union.

The beginning of the rollout of the Pfizer-led COVID-19 vaccine and the anticipated release of the similar Moderna vaccine have led the rise in oil prices in recent weeks, overwhelming more pessimistic news of growing COVID-19 cases in the US, widespread economic restrictions and increasing unemployment claims.

NYMEX January WTI settled 54 cents higher at $48.36/b and ICE February Brent climbed 42 cents to settle at $51.50/b.

As for products, NYMEX January RBOB settled 3.52 cents higher at $1.3881/gal and January ULSD was up 1.73 cents at $1.4952/gal.

"The oil market woke up to the perfect set of conditions in order to reach a new high since the COVID-19 pandemic started," said Bjornar Tonhaugen, head of oil markets for Rystad Energy.

"Yes, the beginning of the first vaccination campaigns has helped and is still helping prices grow, but oil is also getting significant support today from the weakest dollar rates in more than two years, from a surprise draw in US crude stocks, and as a $900 billion relief package in the US seems to be getting closer and closer," Tonhaugen added.

Edward Moya, senior market analyst OANDA, noted that there's also optimism the UK and EU may just be days away from finally reaching a post-Brexit deal.

And, in Asia, crude demand remains robust and rising, he said.

If the US Congress can get a virus relief bill done by the end of this weekend, Moya said, "that might be the last catalyst needed to help WTI crude make a run toward the $50 level."

Some concerns

With crude prices on a seemingly "unstoppable" roll of late, Moya said, there's a clear light at the end of the tunnel. But, notably, we're still in the tunnel.

"The only thing that could get in the way of oil's rally is if any problems emerge with the coronavirus vaccine rollouts," he said. "Transportation issues and some slowness in getting people vaccinated may start to raise doubts that a return to pre-pandemic life will happen by mid-fall."

With some complaints arising about the Pfizer vaccine rollout, especially in Florida, the pharmaceutical giant put out a statement Dec. 17 assuring that it hasn't had any production or transportation problems and that it has ample supplies for the necessary second vaccine doses after the first injections, adding, "We have millions more doses sitting in our warehouse but, as of now, we have not received any shipment instructions for additional doses."

Tonhaugen, of Rystad, emphasized that regional economic lockdowns are still causing widespread demand destruction, although the holidays are now looking "more festive" for the oil sector.

We also must wait until early January to see whether the OPEC+ group decides to keep adding more barrels back to the market in February.

"We find that the market is getting a bit carried away in the recent rally but, for the time being, the trend is your friend," Tonhaugen added.

Then it's just a question of when and if Congress can agree on another coronavirus stimulus deal. While deal making has mostly eluded a gridlocked Congress, Republicans and Democrats all seem eager to work out a deal before their holiday break.

"Stimulus talks in Washington have made significant progress, and markets are already pricing in a deal by year-end," said Milan Cutkovic, a market analyst at Axi. "The pressure to reach a deal is rising on both parties as the US economy could be sliding into another recession, and investors remain optimistic that another aid package is just around the corner."