March Madness 2021 Boom or Bust for Crude

Crude has been the underdog since Covid-19 broke onto the scene in early March of 2020. We have seen historic contango, negative trading, inventories at the verge of 100% capacity. However, we have also seen refineries curtailing production and shutting down, crude breaking technical level after level, OPEC + committing to decreased outputs, a Texas winter weather creating supply concerns, and a slow steady recovery of crude as inventories are drawn down and production resumes. Crude has built a full head of steam and looks to be an unstoppable force and a surefire pick to rise to glory yet again for 2021. March Madness is known for its volatile emotional up and downs and surprise sleeper teams with unimaginable upsets. Will 2021 and a third European lockdown amid vaccine safety concerns be the sleeper to upset the rise of Crude?!

 

Late last week, European countries sounded the alarm when Germany declared a “new” pandemic as it struggled to combat the UK variant (B117) of Covid-19. Additionally, large portions of Europe’s population signaled distrust with the AstraZeneca vaccine, citing blood clots as a major side effect. A large PR campaign was pushed out by many countries and “new” test results were furnished to put minds at ease. To further complicate matters, the National Institute of Allergy and Infectious Diseases (NIAID), on a lead from Data Safety Monitoring Board, challenged AstraZeneca on its findings. NIAID contested that the data provided on the vaccine stated a 79% effectiveness with little to no side effects was misleading at best, and AstraZeneca conceded that data was cut off on Feb 17th. They have committed to sharing current results within 48 hours, but the distrust in Europe is growing by the hour and has derailed the momentum of continued inoculation of dense portions of Europe’s population.[1]

 

In addition to vaccine distrust, delays in getting the vaccines have also slowed Europe’s inoculation rates. Given these issues, much of Europe reinstated lockdowns and travel restrictions in the wake of the B117 variant. This news shook the oil market. Refineries have been gradually turning the production back on but more lockdowns threaten renewed demand destruction. The destruction could lead to an oversupply and falling crude prices. Last Thursday oil closed more than 7% down and Friday did not fare much better. [2] Lastly, a strengthening US dollar threatened to depress oil prices and it failed to break through the $65.25 resistance.[3]

 

All the growing concerns have culminated into a very unsettling market for Oil. Vaccine concerns, mutations, distribution delays, lockdowns and a strengthening dollar have combined to create crude’s “March Madness 2.0.” Goldman Sachs and other market influencers still believe OPEC+ will offset EU demand destruction and Iranian supply could propel crude to $70-80/bbl by 4Q21.

 

[1] https://investorplace.com/2021/03/what-will-the-stock-market-do-today-3-big-stories-qs-bntc-tkat-oil-stocks-zm-stock/

[2] https://economictimes.indiatimes.com/markets/commodities/news/oil-prices-edge-higher-after-sell-off-driven-by-demand-concerns/articleshow/81593165.cms

[3] https://oilprice.com/Energy/Oil-Prices/Oil-Plunges-As-European-Countries-Extend-Lockdowns.html

 

Written by:
Adam Dunlap

I offer 8 years of energy industry (oil and gas) experience and am excited for the new opportunity in the commodity market. I am fueled by my passion to overcome obstacles while delivering dependable and reliable results to my customers. I am eager to continue building lasting relationships, explore new possibilities, and provide a positive experience for my customers.

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