‘Vaccine trade’: COVID-19 to weigh on energy for 5 to 7 more weeks, analyst warns
Industrial oil chemical metal drums stacked in the tank and container waste yard, Kawasaki city near Tokyo Japan
COVID-19 numbers counter energy supplies as new travel restrictions are put in place to contain a rapidly spreading new variant of the virus and daily case numbers rise in many parts of the world.
Energy, directly related to traffic, is one of the most vulnerable sectors to mood swings in terms of the strength of the virus and the lockdowns that come with it.
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Manav Gupta, a Credit Suisse analyst who tracks the so-called "virus trafficking," notes that the energy sub-group outperformed the S&P 500 (^ GSPC) by about 20 percent between November 7 and 16, which is on Vaccine announcements are due from Pfizer (PFE) and Moderna (MRNA). Now Gupta sees the "virus trade" stalling as the daily case data overwhelms the numbers on the use of vaccines.
The second phase of the vaccine trade began on December 11, 2020 when Pfizer received FDA approval for its vaccine, and exactly one week later, the Moderna vaccine also received the FDA nod. Both are now in sales. During this period, the energy remained -5.5 percent behind the broader S&P 500, ”he wrote in a message to customers on Monday.
Health Canada has not yet approved Moderna's COVID-19 vaccine. The federal agency signed a vaccine from Pfizer-BioNTech on December 9th. Vaccinations with this product started last week.
Meanwhile, the increase in daily virus causes has resulted in tighter restrictions in a number of US states, as well as Canada's most populous province, Ontario. Gupta said the measures are already weighing on demand for refined products, and therefore demand for crude oil, as the refineries continue to be less used.
"We believe that the number of daily vaccinations must be three to four times higher than the number of daily cases for the energy to perform better again," wrote Gupta. "We need more than a million people vaccinated every day to bring infections down, lockdowns / restrictions and energy needs to recover."
In the past week, an average of more than 219,000 new Covid-19 infections were carried out in the US per day, according to a CNN analysis of data from Johns Hopkins University. There were 6,381 new cases in Canada as of December 21, according to Health Canada.
U.S. health officials vaccinated 614,117 people as of Tuesday lunchtime, according to a Bloomberg tracking tool. Canada vaccinated 16,929.
"For Phase 2 to work, the data needs to bend and we could be 5 to 7 weeks away from it," Gupta wrote.
"At this point, the data is against the vaccine trade (cases are increasing and vaccine distribution is limited), which is putting down pressure on energy stocks."
Jeff Lagerquist is a Senior Reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.
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