Oil Soars As Covid Vaccine To Be Distributed In U.S. Three Weeks From Now

President elect Joe Biden transition was also said to boost prices: File Image/PixaBay

With three effective Covid vaccines expected to soon be given regulatory approval and the Centers for Disease Control and Prevention (CDC) saying they will be available in the U.S. next month, the prospect of an imminent demand recovery for oil meant prices on Tuesday rocketed upwards by about 4 percent to their highest level since March.

Brent settled up $1.80, or 3.9 percent, at $47.86 per barrel, while West Texas Intermediate crude settled at $44.91 per barrel, rising $1.85 or 4.3 percent; both benchmarks ended at their highest close since March 5.

This followed Robert Redfield, director of the CDC, telling media on Tuesday that a vaccine will become available in the U.S. "probably by the end of the second week of December," initially with priority going to "nursing home residents and then some combination of health care providers and individuals at high risk for a poor outcome."

He added that this will continue until next March, by which time inoculation will shift to the general public.

The vaccine news was also credited for two of the market's most-watched inter-month price spreads - one denoting short-term strength, the other reflecting an improving longer-term outlook - flipping into  backwardation, which is seen as reflecting tighter conditions.

Helge Andre Martinsen, senior oil market analyst at DNB Bank ASA, said of this phenomenon, "The demand resilience in China and India has certainly surpassed expectations"; and with even the beleaguered air travel market in China nearing normal levels, refiners there have been snapping up crude barrels from all over the world.

Oil was also said to have been boosted on Tuesday by the administration of president Donald Trump giving Joe Biden access to resources that will enable him to take over as president in January - however, as John Kilduff, founding partner at Again Capital pointed out, "The petroleum complex is the vaccine trade; until we can see the other side of the pandemic, the market is going to be mired in slack demand that is going to keep the overhang extensive."

Meanwhile, another factor said to be in oil's favour - the meeting next Monday of the Organization of the Petroleum Exporting Countries (OPEC) to discuss the next phase of its output policy - was unexpectedly criticized by Goldman Sachs on Tuesday.

The bank said in a note, "Beyond the outcome of just another quota decision....there are renewed concerns about the future of the organization," and it cited as a reason "the difficult dual mandate that the group is trying to meet: helping rebalance the market after an unprecedented demand shock, yet achieving higher revenues and market share medium-term."

Finally, a BofA Global Research report predicted flat production in the near term for the Bakken, Niobrara, and Oklahoma regions of the U.S. but offered good news to its neighbour to the north by stating, "Over the coming months, Canadian supply will likely recover further as oil sands operations are restored."