Vaccine-led euphoria pushing crude prices up but demand is weak

They have been helped along the way by oil cartel OPEC+’s decision to roll over production cuts last week, as also by improving economic indicators in most major world economies.
For representational purposes
For representational purposes

NEW DELHI:  Since early November, when Pfizer made its announcement regarding a 90 per cent effective Covid-19 vaccine, crude oil prices have been on a steady march upwards-from around $42 per barrel to the current $55.

They have been helped along the way by oil cartel OPEC+’s decision to roll over production cuts last week, as also by improving economic indicators in most major world economies.

This has been particularly tough on Indian fuel consumers who are among the most taxed in the world, both by Central and state levies.

Petrol and diesel prices have hit record highs again, and unless taxes are reduced, any move upwards in crude oil prices is likely to be followed by petrol and diesel price hikes. 

But the first half of 2021 may offer a status quo, if not an actual reprieve.

A recent research report from Motilal Oswal Financial Services notes that despite the “euphoria” surrounding vaccination, mass inoculation is quite a far distance away and demand has not reached its full potential.

“It will be several months before the advent of mass inoculation to economically active people and relevant impact on oil demand. (Demand) have not reached its full potential yet,” the report observes.

The still weak demand picture is also among the key reasons why the OPEC+ alliance decided to preserve earlier output cuts instead of increasing production, as some of its smaller, more cash-starved members, had sought.

Analysts still expect an upward trajectory for crude oil in 2021, but it will likely mirror the performance of the global economy where recovery is expected to resemble a marathon rather than a sprint.

“Brent and WTI crude are expected to move up more quickly in the second half of 2021,” the report said.

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The New Indian Express
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