Nov 25, 2020 - Energy & Environment

Oil prices may be breaking free of tractor beam

Oil shooting from a pump in a rising arrow
Illustration: Rebecca Zisser/Axios

Crude oil is trading at its highest levels in eight months and prices may be poised to escape the rather narrow band where they've been stuck since June after coming back from their spring depths.

Why it matters: The gains this week don't just matter for the beleaguered industry's future — they're a sign that traders see the promise of COVID-19 vaccines allowing life to begin returning to the before times.

  • There's also the expectation that OPEC+, at its meeting later this month, will delay plans to lessen their joint production cuts at year-end.

By the numbers: Brent was trading around $48.23 and WTI $45.25 Wednesday morning.

What they're saying: "The energy sector is threatening to slam the door on Covid era struggle, and ride positive vaccine economics to the next level," Mizuho Securities USA analyst Robert Yawger writes in a note.

  • Rystad Energy's Bjornar Tonhaugen says, "The oil price comeback seems unstoppable since news of positive vaccine trials arrived and the rise has sidelined other short-term concerns, even lockdowns and increasing crude inventories."

Yes, but: For now the pandemic is raging, which isn't lost on OPEC and Russia.

  • HSBC analyst Gordon Gray, in a note this morning, says he sees "significant" demand improvement during 2021, but there's still lots of uncertainty.
  • "[U]ntil this demand outlook becomes much clearer we would expect OPEC+ to remain extremely cautious about unwinding its cuts too much," Gray writes.

The intrigue: While prices are on the upswing, the pandemic is nonetheless changing the outlook even beyond this year's crisis.

  • The Wall Street Journal, citing internal documents, reports that Exxon has "lowered its outlook on oil prices for much of the next decade."
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