(Reuters) – Oil traders rushed to unwind a bevy of bearish bets after Pfizer announced promising results for its COVID-19 vaccine, shaking up energy markets that were primed for demand to sink into the winter on increased lockdowns and rising coronavirus infections.
Crude prices plunged this year as global demand was crushed due to travel restrictions to curb the spread of COVID-19. Coming into this week, investors have been betting heavily on further weakness in prices as worldwide infections surpassed 50 million and numerous countries re-imposed lockdowns to slow the virus’s spread.
That changed on Monday morning, when Pfizer said its vaccine was more than 90% effective in preventing COVID-19, sending equity and commodities markets surging. Brent crude surged by 7% as those holding short positions rushed to reverse them to hold down losses, with more front-month contracts traded Monday than any day since April.
“More longs are coming in but it’s a mix of short covering too for sure,” a trading source at a bank said.
In the week to November 3, commodity markets experienced bearish flows – a combination of selling long positions and adding to short positions – of $9.6 billion, highest since March, according to Societe Generale. The energy complex contributed $4.6 billion (£3.5 billion) of that bearish activity, the bank said in a note.
Money managers had also built up $426 million worth of short positions in gasoline, the biggest short position since December 2019.
The market may have more room to rally, based on technical signals, analysts said. The Relative Strength Index (RSI), a closely watched technical signal, for both Brent and WTI U.S. crude futures, is at about 54. An “overbought” market – one that is at risk of slipping – is reached when the RSI hits 70, analysts and traders said.
The biggest U.S. oil-focused exchange-traded product, United States Oil Fund LP, USO rose about 7.2% on Monday.
To be sure, there are still headwinds for the oil market. The Organization of the Petroleum Exporting Countries may elect to increase supply if a recovery seems imminent, and the vaccine will not be available widely until at least next year. Infections are rising rapidly, particularly as the winter rolls into the Northern Hemisphere.
“The timing of a global roll-out of any vaccine is further down the road than some believe, so it will take a long time to apply it to the global population,” said Bjornar Tonhaugen, head of oil markets at Rystad Energy.