Crude oil prices are up slightly as the market digests the latest news on Covid vaccine and potential lockdowns in the United States. Brent, the global benchmark, is up by 0.20% and is trading at $44 while the West Texas Intermediate (WTI) is up by 0.25% and trading at $41.
Today, the gains of oil prices are relatively smaller than those made yesterday when Brent and WTI prices rose by more than 5%. The two rallied after Moderna, a pharmaceutical company, announced that its vaccine was about 94% effective. That news came a week after Pfizer also announced that its vaccine was 90% effective.
A vaccine is beneficial for oil prices because it will slow the spread of the virus and incentivise more people to travel locally and internationally. This, in turn, will lead to higher demand, which is currently significantly lower than where it was last year.
The loss of momentum today is possibly because of the surging number of Covid cases in the United States. The country is reporting more than 100k new cases, which has led many states to start ordering fresh lockdowns. Just yesterday, California announced that it will order most businesses to close in a bid to slow the spread.
Other states like Chicago, Michigan, and New Jersey have also announced plans to reduce interactions among people. Lockdowns in the US will therefore lead to oversupply and lower demand, which will affect oil prices.
Brent needs to move above $46
Brent crude oil prices has been rising this month. From November 1 to today, the price has gained by more than 20%, making this one of its strongest months. This increase is mostly because of hopes of a vaccine, the conclusion of the US election, and the overall weaker US dollar.
On the daily chart, we see that the price is at the same level as the 50% Fibonacci point. This retracement joins the highest and lowest levels this year. It is also a few points below the important resistance level at $46.00.
Therefore, while the strong rally is fading, the next validation point to watch is $46, which is the highest point in August. As such, if bulls are able to push Brent prices above this level, the next key resistance zone will be $50. This price is about 14% above the current price. The invalidation for this trade is if oil prices move below $40.
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Oil prices technical chart
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