At the beginning of the coronavirus pandemic and as different countries shut down, jet fuel and gasoline demand plummeted. There was no sign that the oil industry could recover from the record-low prices.
Many hoped that the pandemic’s “positive” effects would linger as citizens around the world began to appreciate the blue skies rather than the polluted cities, they were used to living in. This has led to demands for governments to impose stricter emission control as a long-term solution to high carbon emissions. Many people continue to work from home where possible, so there was and still is, less demand for oil, although countries are gradually easing their lockdown measures.
It was expected that oil prices might never reach pre-pandemic highs. Especially not the record high it achieved in 2019. This was an alarming prospect for Texas, Russia, Western Europe, Nigeria, and Iraq – countries that heavily dependent on crude oil.
But now, as the coronavirus pandemic and its lockdowns have been eased and the news of a vaccine motivates countries around the world, the oil market and its prices are not left behind. Is it possible for the oil industry to reach its pre-pandemic highs as the announcement of the first vaccine is announced from the UK on 8th December 2020?
Recent Oil Price Increase
In late November, oil prices experienced a more than 4% increase, reaching its highest levels since the blow it received in March. This was following the third coronavirus vaccine promised to the US, which raised hope for increasing fuel demand. It was also after the President-elect of the US, Joe Biden, started transitioning to the White House.
While US West Texas Intermediate experienced a 4.3% increase, Brent got a 3.91% price increase, the two benchmark’s top level since the 6th March this year.
Since there is now a vaccine, those in the oil industry see this as an opening for increased demand in 2021 as lockdowns will be raised, and people will need oil again. In addition to this, it’s also advised that traders keep an eye on the economic calendar for other major market news announcements that can be found on our website here.
Biden’s transition into the White House also influenced the recent oil price increase. He selected his advisors early, helping keep crude equities and futures afloat.
The price increase gave a glimmer of hope that we might achieve pre-pandemic highs as time goes on, especially in 2021, supported by the fact that the crude oil inventories are still increasing and distillate stockpiles, decreasing.
What the Vaccine Means for Oil Prices
Since the demand outlook for oil has increased with the promises of coronavirus vaccinations beginning in the United States soon, it’s expected that oil prices will rise.
Oil was not the only market that benefitted from this news, as other markets rallied after a third company, AstraZeneca Plc, reported its vaccine that will immunize most people from the coronavirus. Since vaccinations are starting in December under the government’s vaccine acceleration program, it’s expected that most people can get back on the road (or sky) and start benefitting from the use of gasoline and jet fuel again.
If the vaccine proves to be effective and can be distributed quickly, roads and airports will open worldwide. This means most people will need oil to move around, whether they’re going to work or to another country.
The coronavirus vaccination expectation also rearranged the oil futures graphs, making the nearby prices increase higher than the latter prices. There was also a bullish backwardation on the West Texas Intermediate graph’s small pockets, which means there were gains, which continued for several days.
Thus, the coronavirus vaccine’s prospect has had a positive impact on oil prices, and since most people will rush back into the roads or airports once they have been vaccinated, it is expected that oil prices might reach pre-pandemic highs!
What Else Affects the Oil Price?
The introduction of the coronavirus vaccine and Biden’s impressive advisor selection plus his transition to the White House are just some of the factors that contributed to the oil prices increasing.
What’s more, there have been unconfirmed missile attacks that seem to be supporting the oil price increase. In Yemen, the Houthi rebels have attacked the Saudi Aramco fuel distribution center in Jeddah with a missile. After this, oil prices soared, and even the Brent benchmark experienced the highest jump in 30 years. Nevertheless, after Trump announced that he would release the US reserved, the prices went back down.
Another factor affecting the oil prices, raising hopes for a pre-pandemic high, is the weaker dollar. The weak US dollar is what kept the oil market afloat for a long time during the pandemic. This is because oil is a dollar-denominated asset, so the weak value supports the increase in oil prices.
Finally, the positive risk sentiment in the US is also contributing to the oil price increase. All the oil market seems to be waiting for now is the easing of lockdowns and increased demand for oil so that the industry can kick off again and aim for pre-pandemic highs.