OIL : 2021 Optimism ?

(Sun, 20 Dec 2020). Crude oil prices have ripped higher over the last month and a half. Outlook for the commodity has improved considerably as global GDP growth projections continue to recover. This is because the path of the global economy - and crude oil prices - hinge largely on the course of the pandemic due to its widespread impact on mobility and consumption.

Welcomed vaccine developments, like Pfizer and Moderna both reporting over a 90% effectiveness in stopping the spread of COVID-19, have provided markets with reason to be optimistic. Nevertheless, it is noteworthy that uncertainty and downside risks still loom large.

Most prominent is potential for widespread lockdowns to return in the wake of the 2020 winter holiday season. Vaccine rollout hiccups could prompt an abrupt rise in the VIX ‘fear-gauge’ and correspond with a materially bearish reaction across risk-assets such as crude oil. Furthermore, OPEC and its allies may soon opt to increase production, which could negate the positive impact rising demand has had on crude oil prices.

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