WTI fails to hold above $53.00 as bullish/bearish narratives vie for control

• WTI managed to rally briefly north of the $53.00 level but is now back closer to $52.50.
• It’s been another mixed day for crude oil markets as traders weigh up conflicting narratives.

It’s been another mixed day for crude oil markets as traders weigh up conflicting narratives. WTI managed to recover back to the north of the $53.00 level at one point, seemingly in line with a recovery in broader risk appetite that also saw stocks rising and the US dollar falling but has fallen back to the $52.50s in recent trade. As of right now, crude oil is trading about 0.4% or 20 cents lower on the day.

Conflicting narratives

Lockdowns and Travel Bans: Bearish

Fears of wider lockdowns in the EU (lots of attention has been paid to whether or not France will announce a third national lockdown after rumours over the weekend and German Chancellor Angela Merkel is facing increasing pressure from within her government to tougher restrictions) and news of travel restrictions going into the US and UK are exerting a bearish impulse on crude oil markets. These latest updates highlight how near-term demand for fuel remains shakey as countries act to bring down Covid-19 infection rates within their borders and to prevent the arrival of a foreign strain of Covid-19 from outside their borders.

China is also under scrutiny ahead of Lunar New Year celebrations. China is acting to discourage travel before the holiday rush, which normally begins on 28 January, lasts for 40 days and is seen as the largest mass movement of people on the planet, out of fears that it might spread the Covid-19 virus. The country has seen a small resurgence in cases in recent days. Lower travel for the Lunar holiday this year is already a negative for crude oil demand, but if the virus is spread more widely in the coming month, then more Chinese regions face lockdown, which would further weigh on demand.

Vaccine and Covid-19 Strain Updates: Mixed

AstraZeneca and Pfizer have had to reduce vaccine deliveries over the last few days given production chain issues. Meanwhile, there is understandable concern regarding the possibility that recently developed Covid-19 vaccines might not be effective against all Covid-19 variants. Moderna’s vaccine elicits a six-fold smaller antibody response against the South African variant than it does against the original and UK variants of the virus, according to the latest numbers from the company on Monday.

However, Moderna announced last night that it was to start investigating a booster vaccine shot (to come 6-12 months after the second dose) that would specifically address the South African strain and Pfizer is also to look into a booster dose. Meanwhile, after the release of a decent earnings report, the Johnson & Johnson (J&J) CFO said that they expect to release Covid-19 vaccine trial data next week and that the company is very optimistic that they will be releasing a very robust data set. J&J’s vaccine is being touted as a “game-changer” in the vaccination race as it would only require one shot to acquire full immunity.

Stimulus, Global Recovery: Bullish

The longer-term outlook for crude oil markets remains broadly positive, most analysts agree, even if there are some bumps and hurdles along the way; the global economy is expected to rebound aggressively once the populations of major economies have achieved a sufficient level of herd immunity so that Covid-19 infection rates are acceptably low, with the rebound (and inflation) supported by unprecedented levels of fiscal and monetary policy stimulus. The IMF just upgraded their forecast for global growth in 2021 by 0.3% to 5.5%, largely a reflection of an upgrade to US growth; crude oil market bulls hope that US demand will be further boosted by another round of fiscal stimulus which Congress might pass within the next few months.