Americas News
Oil Plummets On European Vaccine Debacle, But Analysts Still Keen On 2021 Demand Recovery
Negative sentiment went into overdrive within crude trading circles on Thursday, thanks to the Covid vaccination program slowing in Europe because of health concerns of the AstraZeneca vaccine and lockdowns resuming in Poland and Italy.
Brent plummeted $4.72, or 6.9 percent, to settle at $63.28 per barrel, while West Texas International fell $4.60, or 7.1 percent, to settle at $60.
John Kilduff, founding partner at Again Capital, lamented that "A best-case scenario for demand recovery had been priced into this market; everyone was celebrating the vaccine rollout and reduced restrictions.
"Now in Europe, it's gone off the rails almost completely: lockdowns in Poland and Italy strike at the heart of this whole demand recovery narrative and thesis that pumped up prices."
Completely ignored on Thursday was an investigation by European regulars that found the vaccine to be overwhelmingly safe and effective, which means the program will resume shortly; and that more than half of all adults in the UK are now inoculated, which means a further lowering of restrictions.
Still the five-day losing streak is the longest for WTI since February 2020 and for Brent since September 2020, and added pressure comes from a further rise in U.S. stockpiles due to WTI on March 12 switching from backwardation to contango, where front-month contracts are cheaper than the second month.
A somewhat more optimistic Julian Lee, commodities analyst for Bloomberg, stated on Thursday that for the time being stockpiles are coming down, but producers can't afford to resume full out production yet because "the recovery this year will return less than two-thirds of oil demand lost in 2020."
Lee added, "Demand is set to show strong year-on-year growth in the second quarter; but, despite an increase of about 12 million barrels a day, the recovery would still only return about three-quarters of the demand that was lost in the same period last year."
While Thursday crude price collapse wiped out more than two weeks of gains for WTI, oil futures are still up well over 20 percent since the start of the year, and Tamas Varga, analyst at PVM Oil Associates Ltd., reminded colleagues of the tremendous upside that still awaits the energy industry later this year by noting, "Short-term supply and demand considerations are temporarily casting a shadow over the bright future that is likely to arrive in the third quarter of the year."
