Oil is trading higher, but still not the rallying cry needed to get the oil complex back on its feet, especially in the wake of the latest precipitous falls. Encouragingly though, as prices shift higher, spreads have tightened a bit, but the contango remains solid with the WTI Dec20/Dec21 -3.62 and provides the poorest forward-looking optics of them all.
But at these levels, trading houses might begin to think about buying for future delivery and could start bidding for offshore storage, which is typically the case when tanker rates are as depressed as they are right now. The slope and curve economics are not quite there at the moment, but in the absence of further OPEC interventions, should the curve steepen more and tanker rates remain favorable, trading house demand could provide a keen level of support.
The catalyst for the fall in crude has also been the sell-off in equity markets and especially what appears to have been a bubble in tech stocks where Tesla (NASDAQ:TSLA), the epitome of the anti-crude oil play, tumbled massively this week. So it would make sense also that as stock markets surge again, oil prices will push higher, and that's exactly what happened overnight. Still, investors may need to fill Tuesday's Nasdaq gap to get oil prices kicking into a larger gear.
In the background, of course, continues to be COVID concerns and the delicate balancing act needed to return economies to a new normal and manage the likely rise in cases in the northern hemisphere when social activities move indoors, and the virus could spread more aggressively.
In this regard, AstraZeneca (NYSE:AZN) pausing all vaccine clinical trials yesterday certainly roiled the oil markets that had started to become more optimistic about a vaccine over the last month. However, there is light at the end of the vaccine tunnel as AstraZeneca's COVID-19 trials may resume next week, according to the Financial Times. The drugmaker had suspended its vaccine trials after an unexplained illness in a UK participant. And this pivot is being consumed on the positive side of the ledger.
In reality, prices above Brent $45/bbl were getting ahead of the recovery as most of the low hanging bullish fruit had been consumed. And traders simultaneously found themselves at the end of the bullish runway running headlong long into one of the biggest price impediments of them all, the "end of summer" seasonality waning demand. So markets shifted into what can't go up must go down mode as profit-taking initially got the ball rolling downhill, then all the rest of the knowns pilled on top.
Still, with driving and travel in the US at a historically depressed level this past summer, the impacted demand side can be seen in the weak refining margin environment prompting the cut in Saudi OSPs for October. And the thought here is that things are unlikely to turn better until we get a US stimulus agreement or broader improvements are seen in the US employment data.
Given the multiple market oddities that appear to be popping up in "wack- a -mole" fashion, traders are unquestionably relying on their correlation matrixes these data. EUR/USD holds 1.1800 with gold holding + $1925, so it is very conceivable that the USD dollar weaker trend resumes, and this could offer up a much-needed lifeline to the oil markets. I think oil traders are looking at this trade very closely.
If you follow my blog, you know that one of my crucial recovery signposts for oil is Lumber, and if you are looking for market price action, oddities look no further. After the epic runs higher since June, after last week's market melt, we had a consecutive run of 5 " limit down" days. Finally, yesterday, we opened the limit down, then trade limit up, only to finish limit down. Enough said.