Crude oil and related energy ETFs are on the rise Wednesday, as the market continues to roar back, bolstered by news of a 90% effective coronavirus vaccine earlier this week. Analysts are still leery about the future of the crude market however.
Crude oil has been on a tremendous run since the beginning of the month. West Texas Intermediate crude oil has gone from $33.64 a barrel to just over $43 in less than 10 days, a nearly 28% increase. The move helped drive the The United States Oil Fund (USO) up almost 2% Wednesday.
While bargain hunters were likely looking to buy oil on the cheap, the news Monday of a potentially 90% effective coronavirus vaccine from Pfizer has catalyzed the rally, sending WTI above its recent range as it potentially eyes August highs. Investors who are wary of the coronavirus as we head deeper into the reportedly more perilous winter months see the vaccine as a boon for oil, which could help to shore up a fragile U.S. economy.
For another month, OPEC ratcheted down its projection for global oil demand as the renewed spike in coronavirus cases in key economies is stifling the crude demand recovery.
The popular Monthly Oil Market Report (MOMR), showed that OPEC slashed its global oil demand forecast for this year by 300,000 barrels per day (bpd) compared to last month’s projection, and now predicts global oil demand at slightly above 90.0 million bpd this year, a decline of 9.8 million bpd compared to 2019. While there has been optimism over a potential vaccine in the U.S., the key reasons for the fall in demand for this year are the recent fresh lockdowns and curfews in many key European economies such as the UK, France, Germany, and Italy.
Coronavirus cases continue to mount in the U.S., with the seven-day average of daily new cases Monday hitting 108,964, a 37% increase from a week ago, according to a CNBC analysis of data from Johns Hopkins University. Globally, that number is more than 51 million, including over 1.28 million deaths.
OPEC projects anemic oil demand recovery is could continue into 2021, causing the cartel to limit its estimate for global oil demand next year as well. In 2021, oil demand is expected to grow by 6.2 million bpd compared to 2020. This is a downward revision of 300,000 bpd compared to OPEC’s October forecast.
“These downward revisions mainly take into account downward adjustments to the economic outlook in OECD economies due to COVID-19 containment measures, with the accompanying adverse impacts on transportation and industrial fuel demand through mid-2021,” OPEC said.
“The oil demand recovery will be severely hampered and sluggishness in transportation and industrial fuel demand is now assumed to last until mid-2021,” the cartel added.
Investors who championed a drop in crude oil recently were rewarded for using inverse ETFs like the ProShares UltraShort Bloomberg Crude Oil (SCO). But with oil moving higher as sanguine vaccine news sweeps the globe, an ETF like the ProShares Ultra Bloomberg Crude Oil (UCO), which is up 2.93% Wednesday, may be a better bet for the time being.
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