Oil prices this week seem to get the blues in the mornings, as the market firstly digests bearish indicators, but then as positive news emerge from the vaccination front prices tick up again.

Today, projections of a surprise rise in US weekly crude stock levels and the ongoing global lockdowns depressed oil prices, as traders faced the market reality, realizing that oil demand is not yet immune and is about to take a new hit before things improve.

The current lockdowns affect both road and jet fuel demand and as fewer people travel, despite December being a seasonally travel-heavy month, oil demand will land reach much lower levels than it normally would, to below 93 million bpd, lower than November’s 93.3 million bpd. 

Road fuels demand in Europe is beginning to stabilize after a notable drop in November as most of the continent went into a light lockdown.

On the other side of the pond, the US is just starting to see a drop in road fuels demand on the back of new mobility restrictions, such as the stay-at-home order in California.

In Europe, road fuels demand has stabilized at 6.3 million bpd, a 12% reduction (about 850,000 bpd) versus pre-virus levels.

Road fuels demand in the US currently stands at 10.3 million bpd, a 16% decline (about 1.9 million bpd) compared to pre-virus levels.

As Covid-19 cases still spike, many European leaders are now gradually walking back promises to lift mobility measures by Christmas. Given that restrictions in Europe are not being uniformly lifted, and on top of this the imposition of new measures in the US, we do not expect road fuels demand to go back to pre-virus levels in the 1Q21.

Despite demand indications being far from positive on the short-term, oil prices are now rising. The explanation is simple and it’s related to what has driven prices to above 50 dollars lately, it’s the vaccines.

Brushing off early losses, prices ticked up again through the day as traders capitalized on news that the Pfizer vaccine rollouts are widening in the US, while a second vaccine is on the works to be approved.

Quick vaccine approvals and rollouts are perceived as a relief by the market, which hopes that immunity will open travel quicker than expected, helping road and jet fuels fully stand on their feet.

Prices are also supported by Asia’s physical market, where refiners February cargoes purchases are fetching high premiums to the underlying benchmark crudes.

Despite trader optimism, a demand recovery is not what IEA believes in either, slashing lately its estimates for jet fuel demand citing pessimism over the quick comeback of travel.

In our view, vaccination campaigns are a clearly positive development and the way out of the pandemic on the long term. They definitely deserve to lift oil price levels. However, the enthusiasm and a 51-dollar Brent barrel may be taking it a bit too far under current fundamentals.