Crude Prices Drop Again, But Vaccine News Mitigates Losses

Meanwhile, Yardeni expresses confidence about an improving economy: File Image/PixaBay

News that Saudi Arabia was cutting its selling price for the Arab Light crude it sells to Asia was interpreted by traders on Monday as another sign that the global economic recovery is stalling, and as a result crude prices took another hit, this time by almost 2 percent.

The pessimistic mood, which first took hold in the second half of last week, was not helped by data showing that China slowed its intake in August and increased its products exports.

Still, continued good news about the development of a Covid vaccine (Australian officials said they would receive their first batches of two different vaccines in January, which will offer "multi-year protection") helped mitigate losses: Brent on Monday slid 63 cents, or 1.5 percent, to $42.03 per barrel, while West Texas Intermediate fell 67 cents, or 1.7 percent, to $39.10 per barrel.

The Saudis cutting their crude by the most since May and China's shift to exports caused Keisuke Sadamori, director for energy markets and security at the International Energy Agency, to remark, "There are so many uncertainties with regard to the Chinese economy and their relationship with key industrialized countries, with the U.S. and these days, even Europe.

"It's not such an optimistic situation ... that casts some shadow over the growth outlook."

John Kemp, commodities analyst for Reuters, noted that hedge funds and other money managers sold the equivalent of almost 40 million barrels in the six most important petroleum futures and options contracts at the end of August: "The rate of selling equalled the week to July 28 as the fastest since mid-March, when the [pandemic] was raging unchecked and major oil exporters were engaged in unrestricted volume warfare."

But as always with the energy market, opinions differed: while Kemp and others regarded the rebalancing of the oil market as stalled, Russian president Vladimir Putin and Saudi king Mohammed bin Salman spoke by phone on Monday and agreed that the Organization of the Petroleum Exporting Countries' (OPEC) output cutbacks had generally stabilized global energy markets; they also vowed to continue coordination action.

Even more optimistic was long-time market bull Ed Yardeni, president of Yardeni Research, who said he expects an improving economy paired with a coronavirus vaccine within months should make cyclical stocks more attractive: "We may very well see a broadening into what people call value stocks - more specifically into financial stocks, for example," and he added that the S&P 500 will end the year at 3,500 points, which implies a 2 percent gain from Friday's dismal close.

In addition to Australia's vaccine news, the World Health Organization on Monday said it is working with China on international approval of that country's vaccines, trials of which have shown they are safe for older people (four of the world's eight vaccines that are in the final phase of trials are from China).