Accelerating Rally in Oil Prices Signals Optimism About Global Growth
By Amrith Ramkumar
A recent rise in oil prices continued on Tuesday, sending crude
to its highest level since early March with investors wagering on a
brighter economic outlook and higher demand for fuel.
U.S. crude-oil futures for January delivery advanced 4.3% to
$44.91 a barrel, rallying for the sixth time in seven sessions and
eclipsing their peak closing level from late August. Oil started
the year above $60, briefly tumbled below $0 for the first time
ever in April as coronavirus shutdowns crippled demand, then
rebounded around $40 this summer.
Prices had hovered around the $40 level for months, but upbeat
coronavirus vaccine trial results in recent weeks are igniting
fresh gains. The data from Moderna Inc. and the duos of Pfizer Inc.
and BioNTech SE and AstraZeneca PLC and the University of Oxford
are fueling hopes that global consumers will be vaccinated more
quickly than previously expected and could resume traveling.
That would be a boon for energy producers like Chevron Corp. and
Exxon Mobil Corp. because oil demand rises when more people are
driving and flying and ships laden with goods are traveling all
over the world. The pandemic fueled a historic drop in fuel demand
early in the year and prompted a fresh selloff in late October, but
traders now expect a recovery in consumption to extend the oil
rebound into 2021.
"It's a total change of vibe," said Robert Yawger, director of
the futures division at Mizuho Securities USA. "Everything is much
more positive now."
In another sign analysts are more optimistic about future oil
demand, U.S. crude futures that expire next summer now cost more
than futures expiring later in 2021. That condition, known as
backwardation, signals higher expected consumption and sends a
bullish signal to investors who often have to sell contracts that
expire sooner and buy longer-dated futures.
Brent crude, the global gauge of oil prices, added 3.9% to
$47.86 a barrel on Tuesday, also posting its highest close since
With the demand outlook brightening, hedge funds and other
speculative investors have lifted net bets on higher U.S. crude
prices in recent weeks, Commodity Futures Trading Commission data
In addition to vaccine trial results, Wall Street analysts have
also cheered Democratic nominee Joe Biden's recent victory in the
U.S. presidential election. Many traders had feared a contested
outcome or disruptions related to mail-in voting that would leave
the result in doubt for weeks after election day and add to already
elevated levels of economic uncertainty.
Some investors are also pleased with Mr. Biden's expected
nomination of former Federal Reserve Chairwoman Janet Yellen to be
the next Treasury Secretary. Analysts expect Ms. Yellen to advocate
for more stimulus to support the economy as it recovers from the
"The assumption is that she would work with [current Fed
Chairman Jerome] Powell to get a supersized stimulus package"
involving both fiscal and monetary support, Mr. Yawger said.
That optimism about the global economy is prompting gains in
growth-sensitive assets across stocks, commodities and
With oil prices climbing, energy producers have been among the
stock market's best performers in recent days. The S&P 500
energy sector is up more than 35% so far this month, with companies
like Diamondback Energy Inc. and Occidental Petroleum Corp. paring
some of their sizable 2020 declines. Some traders view the rebound
in energy stocks as a bullish sign for the commodity market because
shares of producers tend to be more extreme than oil prices, rising
faster when crude climbs but losing value more quickly when oil
Analysts are waiting to see whether the Organization of the
Petroleum Exporting Countries and allies like Russia continue
existing supply cuts following recent price gains. Earlier in the
month, analysts had expected OPEC Plus might have to deepen
production cuts to support falling oil prices amid a rise in
coronavirus cases around the world.
If the cartel and its partners roll back supply curtailments or
seem to be wavering on their support for the oil market, the recent
rally could fade, traders caution. While many analysts are
optimistic about the outlook for demand in 2021, there is also
concern that recent restrictions in Europe to curb the pandemic and
rising cases in the U.S. could lead to a short-term oversupply this
Elsewhere in commodities Tuesday, most actively traded gold
futures slid 1.8% to $1,804.60 a troy ounce, continuing a recent
selloff with traders selling the haven metal amid optimism about
the global economic outlook.
Write to Amrith Ramkumar at email@example.com
(END) Dow Jones Newswires
November 24, 2020 15:28 ET (20:28 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.