Americas News
Vaccine Breakthrough Continues To Support Oil, But Short-Term Pain Still Possible, Say Analysts
Oil edged higher on Wednesday, still riding on news of a Covid vaccine breakthrough that caused an 8 percent and a 3 percent surge on Monday and Tuesday respectively, but capped by concerns of demand crimping due to rising infection rates in Europe and the U.S.
Brent oil futures surged above $45 per barrel on Wednesday, a 15 percent increase from where they ended last week.
While acknowledging that an imminent vaccine roll out will spur petroleum demand, Andrew Lebow, senior partner at Commodity Research Group, said,"We still have lockdowns in western Europe and there has to be concerns about potential lockdowns here in the U.S., at least targeted ones."
Karim Fawaz, energy advisory service manager at IHS Markit, agreed: "The short-term is still quite challenged, demand is looking quite weak; the second half of 2021 is when we expect to see that demand recovery start to take hold."
But so far demand is steady under the circumstances, and Wednesday's crude trading was supported by the American Petroleum Institute reporting draws of over 5 million barrels each for both crude and distillate inventories.
Also, the discount on front-month Brent versus contracts three months out has shrunk to the smallest gap since July, and this caused Tariq Zahir, managing member of the global macro program at Tyche Capital Advisors LLC, to remark, "The massive moves we've seen in the spread market are really from what had happened earlier this week with the Pfizer announcement.
"People are saying, 'Look demand is going to return, you have a vaccine out there, so let's buy the spreads.'"
As usual, though, opinion about where the crude market is headed was mixed on Wednesday.
Russell Hardy, chief executive of Vitol, forecast oil prices in the high $40s and even $50 in the next few months as inventories draw during the cold weather season and accelerates during the middle of next year.
But apparently too late to accommodate the vaccine breakthrough news announced on Monday, the Organization of Petroleum Exporting Countries (OPEC) in its monthly report thought global demand will rebound more slowly in 2021 than it originally predicted due to the rising coronavirus cases: it saw demand rising by 6.25 million barrels per day (bpd) to 96.26 million bpd, 300,000 bpd less than expected a month ago.
The report stated, "The oil demand recovery will be severely hampered and sluggishness in transportation and industrial fuel demand is now assumed to last until mid-2021."
Meanwhile, a strong sign of oil export rebound was reported on Wednesday for one country at least, with the news that at least 18 oil tankers are expected to load oil for export from Venezuela in the coming weeks, according to state-run PDVSA; so far in November, nine tankers have loaded almost 6 million barrels of Venezuelan crude and fuel for exports despite U.S. sanctions.
