Analysis | November 17, 2020

KTM Commodity Weekly: Forget about $50, get ready for $55 and $58-$60.

Pfizer’s vaccine announcement pushes the Brent crude oil from $40 to $45 levels. With the initial optimistic view in demand dynamics, we forecast a target of $50. Now Moderna, an American biotechnological company, comes up with a new vaccine that protects against COVID-19, which shows nearly 95% protection. Moderna’s trail result shows more efficiency than Pfizer; thus, Brent crude oil price manages to trade above 200EA on Tuesday Asia session for the first time since January 2020.

So, what will be the new target? 

The COVID-19 pandemic triggered a sharp contraction in the global economy in February 2020. And we saw the worst in March and April. To support the economies, Central banks intervened in time to the pandemic. At the same time, OPEC+ agreed to cut production by 9.7 mb/d, nearly 10% of the global oil supply.

As per the World Bank, Global oil production fell by 12% in May, falling from 100mb/d to 88mb/d and has remained well below its pre-pandemic level. The fall was driven by OPEC+, which collectively agreed to production cuts of 9.7mb/d.

This move led the oil prices to recover from April lows, and after that, oil prices stabilized in the third quarter.

With the Pfizer and Marden’s vaccine announcement, demand dynamics will shift significantly via a shift in consumer behavior.

A higher low and higher high pattern on the 4-hour chart suggests, higher prices are still possible. If the price is moving higher, watch out for resistance at $45.40 and $46.60. A weekly and a monthly close above $46.60 needed to rally further towards $55 and $58-$60.

It is important to always keep in mind the risks involved in trading with leveraged instruments.

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