Summarised Outlook
Near-term: Bullish recovery likely as recent Delta variant outbreak subsides.
Medium-term: Demand-led recovery in oil prices expected as COVID-19 protection in developing countries catches up to developed countries.
What’s happening with oil?
The Bear
Oil prices have dipped since hitting a local high of $73 in July, after it became clear that there was a worsening, expanding outbreak of COVID-19 around the world stretching from the USA to Australia.
Oil demand in developed countries has remained relatively resilient apart from jet fuel demand, given the uncertainty hovering over the near-term outlook for air travel.
However, developing country oil demand forecasts have taken a massive hit given the relatively unvaccinated, COVID-vulnerable status of their populations.
Incoming recovery led by China?
As at time of writing however, oil has staged a sharp, V-shaped recovery after consecutive days of losses, likely triggered by China yesterday declaring zero locally-transmitted COVID-19 cases following the latest outbreak in the country.
Where are oil prices going?
Looking ahead, the negative shock to oil prices by COVID-19 are highly expected to be transitory (temporary).
Vaccination rates around the developing world in particular is rising, while many countries are seeing at the very least – a decline in the growth rate of new infections, signalling that a stabilising in their pandemic situation may be on the horizon.
With several developed countries approaching key vaccination barriers, the market should be on the lookout for an overdue transfer of excess vaccine stocks to developing countries, thus accelerating the vaccination programmes in those territories.
Key events to watch in the coming week:
Thursday – Friday, 26 – 27 Aug
Jackson Hole Symposium
The market appears to be torn between Fed Chairman Jerome Powell announcing a monetary policy taper over the event. In our view, the likelihood is low, given how Mr Powell has been emphasizing that the US labour market remains weak, and still requires support.
Wednesday, 1 Sep
OPEC+ Meeting
The group is due to meet and reassess their current plans to increase oil production monthly until pre-COVID output levels are reached. Most analysts do not expect a revision to the current plan as they expect demand shocks to remain transitory in the face of increasing vaccinations.
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