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Brent Crude Oil Reaches Yearly Highs

Brent Crude broke a critical fundamental level of $57 a barrel, a psychological resistance that may see Brent continue to price pre-Coronavirus levels.

Brent Crude Oil Bulls Looking for $58

This is likely on the news that more Americans have received at least one dose of a Coronavirus vaccine than having tested positive for the virus. The United States has been administering vaccines to citizens faster than any other country, with Bloomberg estimating the administration rate at around 1.34 Million doses a day.

Oil Supply Side Providing Headwinds, Complementing Demand Strength

With the demand side of Oil improving exponentially, OPEC has started to increase crude supply by 300,000 barrels to the market in January – showing their confidence in oil prices' stability now and going forward. However, disruptions and African nations Nigeria and Libya have slightly offset the supply hike, with a leak in a fundamental pipeline in Libya alongside a suspension in deliveries in Nigeria pulling away around 110,000 barrels of supply off the market.

Brent Crude Oil Timespread

With Brent Crudes futures month's spreads trading at the highest backwardation in a year, alongside Royal Dutch Shell Plc purchasing the most benchmark-grade cargoes in a single day in 10 years, the physical and financial markets are showing supply tightness and demand for the Crude Oil.

Analysts Are Tentatively Positive on Oil Markets

Ole Hansen, head of commodities research at Saxo Bank A/S, stated that currently, the oil market is "supported by the combination of tightening fundamentals, as seen through the rising backwardation and the renewed risk appetite in the U.S stock market.

Other analysts share this perspective, with Bill O'Grady, Executive Vice President at Confluence Investment Management, stating that "the market is going to see supply contract, assuming OPEC doesn't immediately move to fill the gap."  Furthermore, Goldman Sachs' commodity analysts estimate of 500,000 a day restriction on supply has been greatly surpassed, with the average supply deficit ranging at around the 900,000 barrels a day mark.

Oil's financial price comes from physical pressures

It is important to note that with commodities and other hard asset such as Silver and Gold – the futures market may say one thing. Ultimately, however, it is what happens in the physical market that sets the final price. And in this case, the physical market for Oil is more robust than it was at the peak of the pandemic. Pair that with positive sentiment regarding the vaccine rollouts around the world and a continuation of a supply restriction by OPEC+, and you have a breeding ground for Oil to move higher.

UK Approves Pfizer's Vaccine

Is this the beginning of the end? The UK announced yesterday that they have provisionally approved Pfizer’s Coronavirus vaccine. This makes the UK the first country to approve a vaccine, which they state will be available to individual members of the public by next week.

Vaccine rollout next year

Simon Steve, Chief Executive of the NHS, stated that the bulk of the vaccinations would occur between January and April next year. The Medicines and Healthcare Regulatory Agency (MHRA),  the governing body for the UK which is responsible for ensuring medicines and vaccines are acceptably safe, stated that they volowed “an extremely thorough and scientifically rigorous review of all the evidence” and that “the public can be absolutely confident that the standards we have worked to, are equivalent to those around the world.”

The UK framework allows vaccines to be approved while reviewing the data given to them on a rolling basis, which is why it was approved earlier in the UK. This is compared to the United States, which requires a public review and full scrutinization of all the data available.  The British Government has secured 357 Million allocations of seven separate vaccines.

Vaccine pushing markets higher

The S&P 500 and the NASDAQ were able to squeeze their way to new all-time highs. However, the real winner was oil – reaching $48.40c for a barrel of Brent Crude. It’s edging to break the strong psychological barrier of $50.

S&P 500 and NASDAQ edging higher

Oil needs the Vaccine

The Vaccine has provided a needed boost to the Black Gold. With OPEC+ coming close to a deal, we may see oil breach that $50 mark if OPEC decides to continue the supply cuts.

John Kilduff, a partner at Again Capital LLC, stated that “it looks like there is headway being made, which the [oil] market is looking for.” With the said, US Oil Inventories this week fell lower than what analysts were expecting, with a drop of 754,000, well shy of market estimates of 2.3 Million.

Brent Crude looking for a break of that $50

GBP/USD was surprisingly stable, maintaining that 1.337 level. However, EUR/USD blew past that 1.20 mark, currently sitting at 1.21.

Are you going to take the Vaccine when it's available?

Thank you, Pfizer

Stocks are up on positive vaccine news from a collaborative effort from Pfizer and BioNTech SE, showing that it prevented 90% of symptomatic infections in the trial of thousands of volunteers.   Pfizer shares rose as much as 15% on intraday trading.

S&P 500 in Blue, Dow Jones in Teal and NASDAQ in Blue

Pfizer vaccine Boosting Stocks

NASDAQ was up nearly 4% at its peak intraday; however, it retracted back slowly. However, the Dow Jones and S&P 500 were up 4.73% and 3.55%, respectively. Many tech stocks were generally muted. However, cyclical and value equities are up the most today, with JP Morgan Chase and Visa up 12% and 9.3%, respectively.

Pfizer also boosting Oil

WTI Oil

WTI and Brent Crude were the big winners today, with the black gold up nearly 10% today on the vaccine news, stoking positive sentiment in oil as a vaccine would allow the start of global and domestic travel.

Gold is down nearly 5% on strong risk-on sentiment, altogether breaking away from the correlation with equities it had earlier this year.

Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, stated that the effectiveness of more than 90% “is just extraordinary.” Furthermore, Peter Jay Hotez, a vaccine researcher and dean of the National School of Tropical Medicine at Baylor College of Medicine stated that the vaccine “so far, it looks like it is promising” and that “it helps provide proof of concepts that it is possible to make a human Covid-19 vaccine.”

Pfizer could have vaccine before year-end

If the Phizer and BioNTech SE collaboration can generate efficacy and safety results in the next couple of weeks, we may see two vaccines in the U.S. by around year-end.

This is important, as this gives a hint for the future in risk-on markets.  Alongside a Joe Biden victory, the markets have shown they want a vaccine to push further higher. Ajay Rajadhyashka, head of macro research at Barclays, said that the 90% efficiency rate prove correct. It “increases the odds of a quicker return to normalcy.”

Many countries have pre-ordered a significant number of doses to a successful and approved vaccine, including New Zealand, U.K., and Japan – with enough orders to make herd immunity a possibility in these countries.

With fiscal and monetary stimulus, alongside many consumers have saved money during the quarantine periods and working from home, pent up demand will likely be high. Furthermore, investors that have been on the sidelines may see this as an opportunity to exit bonds and cash and enter back into the equity markets.

Before today, the markets knew that a vaccine would instigate a risk-on rally. Today, however, they were teased with what a successful vaccine will do to the markets. They are currently pricing in a vaccine before the year-end. Anything less, and the market will be disappointed. Really disappointed.

Euro climbs on stimulus and vaccine tailwinds

EUR/USD locks in a 4th straight day of gains on tailwinds regarding European stimulus and vaccine tailwinds. The EUR/USD sits at around the 1.1428 level, hitting a healthy resistance level as bulls ride risk on optimism.

Euro reaping dividends from effective lockdown

Many European countries such as Italy, Spain, and Germany have had an effective lockdown, squashing Coronavirus cases and giving Europe a general sense of control over the virus. However, it is far from over as Germany's Angela Merkel and Italy's Giuseppe Conte fight other member states to show collective solidarity on the Coronavirus recovery fund. However, Merkel points out that it may not be enough, stating that "I don't know whether one will be enough or whatever," and they "[they] will need to meet a second time before the end of summer." This is on the back of the UK and Italy, breaking 100% and 150% Debt to GDP ratios

Positive Vaccine news boosting Euro during the current European session

Modern's vaccine trials showing positive results provided a boost to risk assets and, inherently, weaken the dollar haven, strengthening currencies such as the Euro and the Aussie dollar. Dr. Penny Heaton, Chief Executive of the Bill and Melinda Gates medical research institute, stated that the results of the most recent peer-reviewed study "are promising, and they support the continued development of the vaccine." However, she also said that "However, we must bear in mind the complexity of vaccine development and the work still to be done before Covid-19 vaccines are widely available."

What is the long term outlook for the Euro?

Citibank's analysts predict a large jump to 1.14 in the three-month range and 1.17 in the six to twelve-month scale. However, the currency pair is currently hitting a historically strong resistance, which may see the Euro push lower if there is no further positive news regarding the recovery fund or the vaccine.

Anish Lal, a Senior Analyst here at Blackbull Markets did some brilliant technical analysis on the EUR/USD. You can watch it here.