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Crude Oil Prices Eye $42 on Vaccine News, OPEC+ to Rein Output Hike

Crude Oil Prices Eye $42 on Vaccine News, OPEC+ to Rein Output Hike

Margaret Yang, CFA, Strategist

CRUDE OIL PRICE OUTLOOK:

  • Moderna’s coronavirus vaccine was tested 94.5% effective, brightening the oil demand outlook
  • OPEC+ are moving closer to delaying a planned production hike by 3-6 months
  • WTI crude oil prices are eyeing a key resistance level at US$ 42.00. DoE crude inventory data in focus
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WTI crude oil prices moved higher alongside risk assets after Moderna said its coronavirus vaccine was tested 94.5% effective in preventing the disease. The results were based on an interim analysis of a late-stage clinical trial, which echoed Pfizer’s vaccine breakthrough earlier last week. It means that the US may have two types of coronavirus vaccines available for emergency use as early as December. Unlike Pfizer's vaccine, Moderna's shot can be stored at normal refrigerator temperatures, which should make it easier to distribute

Another vaccine breakthrough has raised hopes for a faster pace of economic recovery and thus brightened the prospects for the medium- to long-term energy demand. Stock markets reacted swiftly in response to the news, with cyclical energy (+6.5%) and industrial (+2.48%) sectors among the best performers on Monday.

The OPEC+ coalitionis holding a meeting on Tuesday, in which the major oil producers may freeze aplanned Januaryproduction hikeby 3-6 months as a second pandemic wave hurts global oil demand. Since markets have long been anticipating a deal, the actual announcement of a freeze could potentially result in a “buy the rumor, sell the fact” reaction.

On the macro front, Japan posted much stronger-than-expected Q3 GDP growth on Monday, painting a favorable picture for Asia’s recovery outlook. China’s industrial production also beat consensus forecasts. Fifteen Asia-Pacific economies have formed a free-trade agreement called the Regional Comprehensive Economic Partnership (RCEP) during the weekend, which aimed to strengthen trade and economic activity in the region.

Demand remains a major drag for oil prices, which appeared to be capped by escalating pandemic risk and a lack of immediate vaccine solutions. The EU and the US are risking further lockdowns and social distancing measures should the situation worsens. This may have an adverse impact on energy demand.

US crude inventories rose by 4.27 million barrels in the week ending November 6th, which contradicted a 5.15-million-barrel draw in the API report and also far exceeded the market’s forecast of a 1.9 million-barrel rise. A larger-than-expected increase in stockpiles sank WTI prices to as low as US$ 40.30 last week. The next EIA DOE crude oil inventory report will be released on November 18th, with expectation of a 1.6-million-barrel increase. The historic negative correlation between crude oil prices and DOE inventory changes can be viewed in the chart below.

Crude Oil Prices Eye $42 on Vaccine News, OPEC+ to Rein Output Hike

Source: Bloomberg, DailyFX

Technically, prices appear to be facing a key resistance level at US$ 42.00, which it failed to break several times in the past few months. Breaking 42.00 will likely opened the door for further upsides with an eye on US$ 43.80 – another key resistance level. In the event of a pullback from here, an immediate support level can be found at US$ 40.40 – the 100-Day Simple Moving Average (SMA) line.

WTI Crude Oil PriceDaily Chart

Crude Oil Prices Eye $42 on Vaccine News, OPEC+ to Rein Output Hike

--- Written by Margaret Yang, Strategist for DailyFX.com

To contact Margaret, use the Comments section below or @margaretyjy on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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