Crude oil price bounced last week together with the world’s stock markets. The news that a potential COVID-19 vaccine may be just around the corner sparked a rally on the “back to normal” stocks and assets.
Oil companies are such assets because back to normal means a stronger demand for oil prices. Therefore, the crude oil price jumped from $37 to $43 before correcting toward the end of the trading week.
The news that Pfizer and BioNTech may have found an effective vaccine shows the world that hope to reach normality again exists. As such, the market reacted by triggering a rotation out of risk assets (JPY, CHF, tech stocks) and into traditional ones (entertainment, travel, oil companies).
Larger mobility means more demand for oil products, and the oil price was the first one to react. Also, the United States elections outcome still favors a different approach to climate change. Therefore, the US majors do not plan shifts in downstream strategies while European majors are scaling back oil refining.
After the dip into negative territory in April, the oil price recovered sharply. It consolidates in a horizontal pattern with the $40 area acting as horizontal resistance. Moreover, one of the key factors for the crude oil price recovery was OPEC+ intervention to stabilize levels. To this day, the cartel is responsible for limiting the oil supply in the market in an effort to sustain the crude oil price to acceptable levels.
However, the crude oil price evolution depends mostly on the pandemic. The sooner societies come back to normal, the better for the oil price.
The $40 level holds the advance for several months now. A clear break of the upper edge of the channel suggests a potential move the $50 level where the measured move for the horizontal pattern lies. A move below the lower edge invalidates the pattern.
