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A Major Oil Rally Could Be On The Horizon

This year has been a true rollercoaster ride for the U.S. stock market, but it is increasingly looking to end on a high note. 

The S&P 500 has climbed nearly 11% in the first two weeks of November as the world moves closer to vanquishing one of mankind's biggest threats in modern history. 

Oil is anything but dead. 

And here are two reasons to stick with oil: 

#1 Vaccine optimism will keep driving things forward Barely a week after pharmaceutical giants Pfizer and BionTech gave the world hope of an effective Covid-19 vaccine, peer Moderna Inc. (NASDAQ:MRNA) has unveiled a potentially better cure.

Moderna has reported that its COVID-19 vaccine candidate, mRNA-1273, has demonstrated efficacy rates of 94.5% in early tests and remains stable at 2° to 8°C (36° to 46°F), or roughly the same operating temperature of a standard home or medical refrigerator, for at least a month. In contrast, Pfizer's vaccine needs a much cooler temperature of -94 degrees Fahrenheit (-70° C) and up to -109 degrees Fahrenheit for shipment for the vaccine to remain viable, which could pose a major challenge in some locations.

Not surprisingly, the energy sector—one of the hardest hit by the pandemic—has been on a tear since the Pfizer vaccine hit news feeds, jumping 23.4% over the past week alone.

The oil and gas industry has been deeply out of favor over the past few years, and trying to call a bottom on the bear market might be a fool's errand. However, the latest developments offer hope to the incurable optimists that the worst might finally be in the rearview mirror for the industry.

Source: CNN Money

More vaccines in the pipeline

Other than his never-ending tweetstorm, Trump has mainly kept a low public profile after losing to Biden in one of America's most divisive elections in modern history. But a few days ago, he came out and publicly accused Pfizer of delaying its Covid-19 vaccine ostensibly in a bid to ruin his chances at re-election. Related: 25 Energy Stocks To Buy Or Sell After The Election

Well, guess what, it appears several other pharmaceutical companies are guilty of the same curious timing of their own—maybe even better—vaccines.

CureVac's (NASDAQ:CVAC) says its CVnCoV vaccine is stable for three months at +5 Celsius, or the standard refrigerator temperature. The vaccine remains stable for up to ready-to-use room temperature for 24 hours.

Sanofi and GlaxoSmithKline's have announced that their two-dose recombinant protein vaccine can be stored between 2°C- 8°C.

Johnson & Johnson also has a Covid-19 vaccine in the pipeline, which, if successful, could be stable at refrigerated temperatures of 2°C - 8°C for at least three months and up to two years at -20 °C.

In short, there seems to be no shortage of Covid-19 vaccine candidates that are potentially even more stable than the Pfizer/BionTech vaccine.

Brighter outlook

That's music to the ears of the oil and gas market, coming after a second wave of Covid-19 infections effectively killed the oil rebound.

Better still, the Pfizer and Moderna vaccines could go into mainstream distribution in a matter of weeks. Indeed, broad vaccine access is expected by mid-2021.

That might be just in time to validate OPEC's latest projections, which have called for the oil market to bounce back next year at a historically quick pace. According to the July report, OPEC sees oil demand spiking ~25% to 29.8 million barrels per day in 2021, slightly above levels recorded in 2019. 

Obviously, a lot of that will hinge on OPEC's ability to maintain production discipline, but so far, the coalition has remained committed after the harsh lessons of the past few months. Related: Oil Majors Aren’t Worried About A Biden Presidency

That said, a solid recovery in oil demand might take months, even in the event of a successful vaccine. The IEA has predicted a recovery in oil demand of 5.8 million barrels per day in 2021, only ~300,000 barrels per day higher than its forecast a month ago after Pfizer announced its vaccine.

#2 Our Energy Transition Won't Happen Without Oil & Gas

No matter how massive the hydrogen hype is, or how much money is being poured into this as the answer to our clean energy future, it's still not a near-term solution. 

It's science fiction to imagine that oil and gas will suddenly disappear because of renewable energy progress. This is all longer term, even if the media makes it seem like it's going to happen tomorrow. 

It's been clearly established that natural gas will be the bridge to a clean energy transition, especially since electricity will likely end up being one of our most important energy sources, and natural gas is at least cleaner-burning than oil. 

For the near to medium-term, it's only the COVID demand culling that's really trouncing oil, and all the positive vaccine news will likely continue to drive forward momentum. And in the meantime, if oil demand starts to slow compared to pre-COVID rates as we bolster renewables, natural gas demand should emerge stronger still. 

By Alex Kimani for Oilprice.com

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  • Mamdouh Salameh on November 17 2020 said:
    The fact that more anti-COVID vaccines are on the way for use starting this coming December will certainly invigorate both the global economy and the global oil market.

    The other factor for the rally is the realization that oil is irreplaceable now or ever. The global economy will continue to run on oil and gas well into the future.

    Furthermore, there can neither be a post-oil era nor a peak oil demand throughout the 21st century and probably far beyond. Moreover, the notions of an imminent global energy transition from oil and gas to renewables and zero emissions are mere illusions. And while renewables principally solar and wind energy will eventually replace coal in global electricity generation, they wouldn’t satisfy global electricity demand without major contributions from natural gas and nuclear energy.

    Oil and gas will continue to be the fulcrum of the global economy and the core business of the oil industry well into the future.

    Based on the above, I expect Brent crude oil prices to hit $45-$50 a barrel before the end of the year and rise to $60 in early 2021.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Arch Region on November 17 2020 said:
    The vaccines are good news.

    1. Good news to stop loss of life, especially for a place like the US that has one of the worst COVID-19 death rates in the world of 750 dead per million. As of today more than a quarter million Americans dead, many more unrecorded as COVID-19 deaths due to catastrophic failure to provide testing.

    2. Good new for the S&P 500 now that TESLA is in and EXXONMOBIL is out.

    3. Good for Oil?

    Maybe a little on the margins. Oil is no longer the fulcrum of the global economy as it once was. This is the reason EXXONMOBIL, which in 2013 was number one company in the US, was kicked out of S&P 500 on August 25 2020. That is what happens when you try to deny the treat of Global Climate Holocaust.
  • Kirk Spano on November 19 2020 said:
    In any industry, money is made at the margins. Peak oil demand happened in 2019 and will likely to be reached again in a couple years before declining by the late 2020s. That means companies with high debt will not be able to generate enough returns to pay down debt over time. OPEC or whatever remains of it will not hold back production with them having the cheapest oil, so shale is doomed. Oil price is likely capped around $60 per barrel. Natural gas is in trouble to as the 13th biggest economy in the world, California, moves away from it, as will other states. The oil and gas space is full of zombies. I believe Pioneer's CEO when he says there's only 4 viable U.S. independents. Exxon has to break apart to maintain its dividend. Chevron is okay but give me tech and solar company instead.

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