The success rate of a global vaccine rollout that will accelerate economic growth and increase oil demand will be crucial in shifting oil price back to growth mode in 2021, Standard Chartered has said.
In recent weeks, optimism about the mass rollout of coronavirus vaccines appears to have been tempered by the resurgent rate of the virus spread.
It has resulted in oil producers trying to orchestrate a delicate balancing act between supply and demand as factors including the pace of the pandemic response continue to cloud the outlook.
“For Nigeria and other oil-dependent countries, the ability to maintain increased demand for oil is crucial for 2021 higher oil prices,” Manpreet Gill, head of fixed income instruments, currencies and commodities at Standard Chartered Bank, said in a Webinar on Thursday.
Recall, the International Energy Agency (IEA) says it expects global oil demand to recover by 5.5 million bpd to 96.6 million bpd in 2021, following an unprecedented collapse of 8.8 million bpd in 2020.
“For now, resurgence in COVID-19 cases is slowing the rebound, but a widespread vaccination effort and acceleration in economic activity is expected to spur stronger growth in the second half of the year,” the bank said.
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Global oil markets, battered by COVID-19, opened the New Year with a price rally gathering pace. Brent rose to $57/bbl and WTI to $53/bbl, reflecting a boost in demand on a cold-snap in Europe and Asia and Organisation of Petroleum Exporting Countries (OPEC) supply cuts that look set to keep markets in deficit.
The British multinational banking and financial services company headquartered in London said “vaccine distribution, fiscal and monetary policy support, bond yields, the US dollar and the value versus growth debate are five factors which are likely to define financial markets in 2021.”
“On balance, we believe these factors are likely to be supportive of risk assets through 2021, possibly with a disproportionate dependency on effective vaccine distribution,” Steve Brice, chief investment officer at Standard Chartered Wealth Management, explained.
Brice added, “While we doubt everything will go smoothly, we see positive development on most fronts, which should be supportive for asset class returns in 2021.
“We expect a modest rise in normal yields but real yields to stay range-bound while an extended dollar weakness is also expected.”
According to Standard Chartered, a weak US dollar is generally good for investment returns, especially for emerging-market assets.
Emerging-market stocks have set a new swath of record highs this week, driven by optimism over additional US stimulus and a dovish Federal Reserve.
The MSCI Emerging Markets Index has now gained more than 9 percent this year, extending a rebound from its low during the coronavirus sell-off in March to a heady 88 percent.
Goldman Sachs Group Inc., UBS Global Wealth Management and Wells Fargo Investment Institute all added to the positive chorus this week, releasing bullish calls on developing-nation equities.
Standard Chartered Bank noted that the increase in excess capacity in the global economy means “central banks are likely to remain focused on supporting growth, which means the equity bull market is likely to continue through 2021 and beyond.”
Concerning COVID 19 vaccine, the bank said it “expects rapid distribution in key economics, albeit with intermittent hiccups” while easy United States Federal policy would likely remain in place but size of US fiscal stimulus less certain.”
In 2021, Standard Chartered Bank expects investors to become more increasingly innovative when it comes to searching for yield, “we believe diversified multi-asset income allocation is likely to perform well.
“The next wave of innovation is expected to be driven by permanent changes brought about by COVID 19 in medical tech (med-tech), internet of things and e-vehicle technology breakthroughs.”
