More oil is about to hit markets. Wall Street isn’t scared

More oil is about to hit markets. Wall Street isn’t scared

Saudi Arabia, Russia and other oil producing countries have agreed to start pumping more oil next month, even as the coronavirus pandemic continues to cloud the outlook for demand.

But that’s not dissuading investors, with crude prices at their highest level since early March.

What’s happening: Brent crude futures, the global benchmark, are trading at more than $49 per barrel. That’s 25% below where they started the year, but marks a huge recovery since April, when prices fell below $20 a barrel. US crude, meanwhile, is now trading above $46 per barrel.

Given the state of the pandemic, this may seem counterintuitive. The United States has been adding 1 million Covid-19 cases to its total tally every six days for the past three weeks, with infection rates triggering greater restrictions in cities like Chicago and Los Angeles.

It was clearly a tough call for OPEC and allies to start relaxing production curbs. Producers said Thursday they intend to increase output by 500,000 barrels per day beginning in January.

So why have oil prices pushed even higher Friday?

It could have been worse. Per Paola Rodríguez-Masiu of Rystad Energy, the production increase “is not the nightmare scenario.” And while the coalition of producers showed some signs of cracking as it debated next steps this week, it ultimately held together. OPEC also said it would “assess market conditions” monthly starting next year, allowing for a course correction as needed.

But UBS energy analyst Giovanni Staunovo thinks that there’s a simpler explanation for the price jump: As with stocks, prices have been buoyed by optimism about Covid-19 vaccines, which are expected to usher in an explosion of demand.

Oil prices are also getting a boost from a weaker US dollar, which makes crude cheaper for buyers in emerging markets, he told me.

Still, the near-term road may be rocky given the trajectory of the virus. UBS forecasts that Brent crude could drop to $45 per barrel by the end of March. Staunovo thinks prices can rise to $52 by the end of June, however, and $57 per barrel by the end of September — lifting struggling energy firms and providing clarity on the path forward.

The latest US jobs report may be a warning
Risky assets like stocks have been flying high on hopes that safe and effective vaccines will bring a swift end to pandemic disruptions in 2021. But in the near-term, efforts to contain the deadly Covid-19 virus are still wreaking havoc on the economy, causing many Americans to suffer.

That message could be driven home Friday by the latest US jobs report, which is expected to show the weakest employment gains since the recovery started.

Economists polled by Refinitiv predict that 469,000 jobs were added to the US economy in November. That’s roughly 169,000 fewer than the previous month, my CNN Business colleague Anneken Tappe reports.

“The breadth and severity of the virus resurgence suggests a larger labor market impact than during the second wave,” Goldman Sachs economists told clients, referring to the spike in cases across the Sun Belt in early summer.

If the November prediction proves correct, the United States will still be down 9.6 million jobs from February. That would mean the labor market has recovered more than half of its losses, but there’s still a long way to go.

On the radar: The situation could be made worse with special pandemic unemployment benefits set to expire in the next few weeks.

Unless Congress reaches a new stimulus deal, programs like Pandemic Unemployment Assistance — which has provided support to independent contractors, gig workers and freelancers, as well as certain people who are sick with Covid-19 — will run out just after Christmas.

Ethan Harris, head of global economics at Bank of America, told my CNN Business colleague Matt Egan that the latest jobs report could give Congress “a wake-up call.”

“There is no outside force intervening telling Congress to stop fooling around and get to work,” he said.

Warner Bros.’ streaming decision shakes the movie industry
In a decision that could upend the way movies are distributed, Warner Bros. — the world’s second-largest studio — has announced it will stream all of its 2021 films on HBO Max at the same time they hit theaters.

The movies include “Matrix 4,” “Dune,” “Judas and the Black Messiah,” “Space Jam: A New Legacy” and the film adaptation of “In The Heights,” my CNN Business colleague Kerry Flynn reports. WarnerMedia, which owns CNN, is the parent company of Warner Bros. and HBO.

Big picture: Movie-watching habits have been changing for years thanks to cheap big-screen television sets and the rise of streaming services. But the coronavirus pandemic has accelerated those trends, paving the way for Warner Bros.’ announcement.

The plan — an industry first — is a gamble on the future of at-home entertainment as a major source of revenue. The movie theater distribution business remains lucrative and crucial to Hollywood’s bottom line.

Investors in movie theater chains, however, have reason to be concerned. Shares of AMC (AMC) and Cinemark (CNK) plunged on the news, nosediving 16% and 22%, respectively.