Market movers americas, Dec 14-18: crude moves higher, but caution required amid vaccine hopes

In this week’s Market Movers: Crude prices move higher but caution is required; Libyan output increase weighs on US crude exports; Aframax freight sees upside ahead of holidays; and the grains market digests the latest WASDE report.

Starting with crude markets …

Oil prices are trading at their highest values since the beginning of March and coronavirus vaccines are on the way.

But that doesn’t mean all is right in the world.

For the industry to be considered even remotely healthy, WTI prices need to rise above $50/b for an extended period, and we’re not there yet. Front-month Brent pricing keeps flirting with the $50/b psychological threshold, but more upward movement is needed.

The OPEC+ group is keeping a floor on prices, but it remains an uneasy alliance.

Crude oil demand should rise by the end of 2021, but that doesn’t mean we’ve returned to life as we knew it. We may still be wearing masks and avoiding crowded indoor spaces even after being vaccinated.

The forward structure for crude oil has turned more bullish in recent weeks as longer-term demand outlooks have improved following the development of multiple COVID-19 vaccines.

To date in December, year-ahead Brent and WTI futures have maintained a roughly 70 cents/b and 30 cents/b backwardation, respectively, compared with front-month contracts.

This is significantly more bullish than in November, when the same spread was in contango by $1.66/b and $1.58/b.

While Brent futures have gleaned support from the rollout of a COVID-19 vaccine in the UK, the threat of more lockdowns in the US has weighed on WTI.

As a result, while Brent’s structure is now backwardated throughout the curve, the front end of the WTI curve remains in contango.

South America corn premiums are expected to be well-supported this week due to concerns about dry weather, lower corn ending stocks in the US Department of Agriculture’s latest World Agricultural Supply and Demand Estimates report, and farmers already in holiday mode.

Traders in the South America grains market were quiet last week, waiting for the release of the latest WASDE report. Sources said the report was neutral, although the USDA lowered its production estimates for Argentinian corn and lifted its estimate for Chinese corn imports.

Aframax freight rates are expected to rise in the coming week, as charterers rush to book ships for outstanding cargoes ahead of the holidays.

Freight expectations ticked higher toward the end of the week beginning December 7 after a slew of charterers seeking to cover cargos on December 9 and 10 turned the market tide bullish.

The weeks following the Thanksgiving holiday, an ample position list and a holdout by charterers in the region from booking ships in the US Gulf Coast had brought rates back to near yearly lows from the end of November.

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S&P Global

Tags: market movers americas, crude moves higher