WTI Hits Highest Level Since Early March
Related Products Yield 20~40% Returns
[Asia Economy Reporter Eunmo Koo] As the development and approval of COVID-19 vaccines accelerate, the pace of increase in international oil prices is also speeding up. Naturally, the returns of exchange-traded products (ETPs) linked to oil prices are also showing an upward curve.
According to Bloomberg on the 17th, on the previous day (local time) at the New York Mercantile Exchange (NYMEX), West Texas Intermediate (WTI) crude oil for January delivery rose 0.4% ($0.20) to close at $47.82 per barrel. WTI, which began an upward trend after the late October low of $35.7, rose to the $47 per barrel level on the 15th, marking the highest price since early March ($47.1).
As international oil prices continue to rise, the returns of ETPs linked to oil futures are also on an upward trend. According to the Korea Exchange, KBSTAR U.S. S&P Oil Production Companies (Synthetic H) closed at 2,705 KRW, up 0.93% from the previous trading day. It rose 46.2% since last month, outperforming the KOSPI return of 22.3% during the same period. Exchange-traded notes (ETNs) also recorded returns in the 30% range during the same period. Shinhan Brent Oil Futures ETN(H) rose 32.5%, while Shinhan WTI Oil Futures ETN(H) and Daishin WTI Oil Futures ETN(H) posted returns of 31.4% and 29.9%, respectively.
Recently, despite the resurgence of COVID-19 and OPEC+’s (the Organization of the Petroleum Exporting Countries (OPEC) and an alliance of 10 non-member countries including Russia) decision to increase production, the acceleration of vaccine approvals has sped up the rise in international oil prices. Expectations for future demand improvement due to COVID-19 vaccine development continue, and the OPEC+ production increase scheduled for January next year (500,000 barrels per day) is smaller than the previously planned increase (1.9 million barrels per day). Kiwoom Securities researcher Soobin Shim analyzed, "Currently, both WTI and Brent crude show backwardation, where near-month prices exceed far-month prices, indicating high expectations for supply-demand improvement in the oil market."
However, there is a gap between expectations and reality, so future oil price increases are expected to be limited. Although the speed of oil demand recovery could be faster than expected due to vaccine development, uncertainties in oil demand still exist. Daishin Securities researcher Sohyun Kim explained, "While short-term oil price volatility may increase due to vaccine development news, the long-term trend will be a gradual rise. Despite vaccine development, it will take time for oil supply and demand to improve, and the industrial structural shift toward renewable energy is likely to limit oil demand improvement."
Earlier, the U.S. Energy Information Administration (EIA), the International Energy Agency (IEA), and OPEC released their December energy outlook reports, all slightly lowering their forecasts for oil demand growth next year. This reflects the fact that although COVID-19 vaccinations have begun recently, commercialization will take time, and the resurgence centered in developed countries and the resulting uncertainty in oil demand in the first half of next year are taken into account.
On the demand side, there is also a risk of supply expansion. From January next year, OPEC+ plans to increase oil supply by 500,000 barrels per day, and Iran’s oil production is also likely to increase. Since U.S. President Joe Biden’s inauguration, the Iranian government has been focusing on the possibility of easing oil export sanctions and is expanding investments to resume oil production to maximum levels in a short period.
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