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‘Vaccine trade’: COVID-19 to weigh on energy for 5 to 7 more weeks, analyst warns

Jeff Lagerquist
·2-min read
Industry oil chemical metal barrels stacked up in waste yard of tank and container, Kawasaki city near Tokyo Japan
Industry oil chemical metal barrels stacked up in waste yard of tank and container, Kawasaki city near Tokyo Japan

COVID-19 numbers are working against energy stocks as fresh travel restrictions are put in place to curb a fast-spreading new variant of the virus, and daily case counts surge in many corners of the globe.

Directly linked to transportation, energy has been one of the most vulnerable sectors to swings in sentiment around the strength of the virus and related lockdowns.

Manav Gupta, a Credit Suisse analyst tracking the so-called “virus trade,” notes the energy subgroup outperformed the S&P 500 (^GSPC) by about 20 per cent between Nov. 7 and Nov. 16, driven by vaccine announcements from Pfizer (PFE) and Moderna (MRNA). Now, Gupta sees the “virus trade” stalling as daily case data overwhelms figures on the deployment of vaccines.

“Phase two of vaccine trade commenced on Dec. 11, 2020 when Pfizer got FDA approval for its vaccine, and exactly a week later Moderna vaccine also got the FDA nod. Both are now in distribution. During this time frame, energy has underperformed the broader S&P 500 by -5.5 per cent,” he wrote in a note to clients on Monday.

Health Canada has yet to approve Moderna’s COVID-19 vaccine. The federal agency signed off on a vaccine from Pfizer-BioNTech on Dec. 9. Vaccinations with that product began last week.

Meanwhile, surges in daily virus causes have prompted tougher restrictions in a number of U.S. 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 as refiners continue at lower utilization.

“We believe for energy to start outperforming again, the number of daily vaccination would have to rise to three to four times above the number of daily cases,” Gupta wrote. “We need over one million people vaccinated on a daily basis for the infections to drop, lockdowns/restrictions to be lifted, and energy demand to start recovering.”

Over the last week, the U.S. averaged more than 219,000 new Covid-19 infections a day, according to a CNN analysis of data from Johns Hopkins University. Canada saw 6,381 new cases on Dec. 21, according to Health Canada.

According to a Bloomberg tracking tool, U.S. health officials had vaccinated 614,117 people as of mid-day Tuesday. Canada has vaccinated 16,929.

“For phase 2 to work, data will have to inflect, and we could be 5 to 7 weeks away from that happening,” Gupta wrote.

“At this point, the data is opposing the vaccine trade (cases are surging and vaccine distribution is limited), putting downward pressure on energy equities.”

Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.

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