This afternoon, risk appetite got another boost on the back of news that a closely watched coronavirus
vaccine being developed by the
University of Oxford and AstraZeneca appeared
safe and triggered an immune response in trials.
Stocks extended their earlier gains, while
silver surpassed the 2019 peak to close in on the $20 handle. However, crude oil was slow to react, although it was coming off the lows. I certainly wouldn’t be surprised if oil prices also turned higher given the positive sentiment across the financial markets.
Over the past few weeks,
crude oil prices have actually been uncharacteristically quiet, suggesting a potentially sharp move could be on the cards soon. With other risk assets remaining supported, the potential move could be to the upside. Hopes over improving demand conditions may keep the bulls happy.
On that front, news that Oxford University’s coronavirus vaccine has showed positive immune response in an early trial should boost those expectations further. Trials involving more than 1,000 people appears safe and trains the immune system to make antibodies and white blood cells that can fight Covid-19. While clearly this is good news, scientists say it is far too early to know for sure whether it is enough to offer protection. Phase 3 trials, involving larger samples, are under way, so we shall find out in the not-too-distant future.
As the race to finding a vaccine for Covid-19 gathers pace, infections continue to accelerate in some US states such as California while Los Angeles looks to be n the brink of another lockdown. India reported its first 40K+ new cases, and infections flared up in Hong Kong. Globally, the death toll has topped 600K with cases exceeding 14.5 million.
However, with major economies opening elsewhere, demand should pick up for oil, and more so if a vaccine becomes available soon. What’s more, investor concerns about the OPEC+ relaxing their record supply cuts is not justified. They are merely doing what they had set out to do from the outset. In fact, OPEC+ supply will still be restricted quite substantially, which could result in a balanced market sooner than expected with demand growth potentially accelerating.
Therefore, if the recovery in demand turns out to be quicker and more robust than expected, the supply surplus could diminish fast given the ongoing supply restrictions by the OPEC+ group. This should mean higher oil prices, everything else being equal.
At the time of writing, WTI was dropping back towards the $40 handle:
Source: TradingView.com and ThinkMarkets
This is a key support level where prices may bounce from. As well as a psychologically-important level, a bullish trend line also converges here. Thus, if the bulls manage to defend their ground here, we may well see a new high above the most recent peak of $42.60 soon. However, a decisive breakdown could pave the way for a move to the next support at $39.00 next.