Oil hits highest level since March on vaccine, Biden transition

Oil hits highest level since March on vaccine, Biden transition
OPEC+ is expected to roll over current supply curbs into next year following technical talks this week. (Shutterstock)
Short Url
Updated 25 November 2020

Oil hits highest level since March on vaccine, Biden transition

Oil hits highest level since March on vaccine, Biden transition
  • Third COVID-19 shot and Trump go-ahead on incoming administration fuel hopes of global demand recovery

LONDON: Oil hit its highest level since in March on Tuesday, rising toward $47 a barrel, as a third promising coronavirus vaccine spurred demand recovery hopes and US President-elect Joe Biden received the go-ahead to begin his transition.

AstraZeneca said on Monday its COVID-19 shot was 70 percent effective in trials and could be up to 90 percent effective, giving the fight against the pandemic a third vaccine. This follows positive results from Pfizer/BioNTech and Moderna.

Brent crude rose 45 cents, or 1 percent, to $46.51 a barrel in morning trade and hit a session high of $46.72, its highest since March 6. US West Texas Intermediate crude gained 47 cents, or 1.1 percent, to $43.53.

“The fight against the coronavirus is intensifying and is proving to be increasingly successful,” said Tamas Varga of broker PVM. “Next year’s oil demand estimates are bound to be amended upwards.”

This is Brent’s highest since the collapse of an earlier OPEC-led output pact, just as demand was starting to crater in March due to the developing pandemic, sent prices crashing.

Also supporting oil and wider financial markets, US President Donald Trump on Monday allowed officials to proceed with a transition to Joe Biden’s administration.

“In the short term, this is good for markets in general as well as for the oil market,” said Bjarne Schieldrop of SEB.

Expectations that US crude inventories edged lower last week also added support. The first of this week’s US supply reports is due from the American Petroleum Institute.

After the previous output pact collapsed, OPEC and allies agreed to record high output cuts to support prices.

OPEC+, as the group is known, is expected to roll over current cuts into 2021 at meetings on Nov. 30-Dec. 1, following technical talks this week.


WEEKLY ENERGY RECAP: Despite long-term challenges, oil prices remain in healthy range

WEEKLY ENERGY RECAP: Despite long-term challenges, oil prices remain in healthy range
Updated 24 min 48 sec ago

WEEKLY ENERGY RECAP: Despite long-term challenges, oil prices remain in healthy range

WEEKLY ENERGY RECAP: Despite long-term challenges, oil prices remain in healthy range

Oil prices have been stable since early January, with Brent crude price hovering around $55. Brent crude closed the week slightly higher at $55.41 per barrel,
while West Texas Intermediate (WTI) closed slightly lower at $52.27 per barrel.

Oil price movement since early January in a narrow range above $50 is healthy, despite pessimism over an increase in oil demand, while expectations of US President Joe Biden taking steps to revive energy demand growth are
still doubtful. The US Energy Information Administration (EIA) reported a hike in US refining utilization to its highest since March 2020, at 82.5 percent. The EIA reported a surprise weekly surge in US commercial crude stocks by 4.4
million barrels. Oil prices remained steady despite the bearish messages sent from the International Energy Agency (IEA), which believes it will take more time for oil demand to recover fully as renewed lockdowns in several countries weighed on oil demand recovery.

The IEA’s January Oil Market Report came as the most pessimistic monthly report among other market bulletins from the Organization of the Petroleum Exporting Countries (OPEC) and EIA. It forecast oil demand will bounce back to 96.6 million bpd this year, an increase of 5.5 million bpd over 2020 levels.

Though the IEA has lowered its forecast for global oil demand in 2021 due to lockdowns and vaccination challenges, it still expects a sharp rebound in oil consumption in the second half of 2021,
and the continuation of global inventory depletion.

The IEA reported global oil stocks fell by 2.58 million bpd in the fourth quarter of 2020 after preliminary data showed hefty drawdowns toward the end of the year. The IEA reported OECD industry stocks fell for a fourth consecutive month at 166.7
million barrels above the last five-year average. It forecast that global refinery throughput is expected to rebound by 4.5 million bpd in 2021, after a 7.3 million bpd drop in 2020.

The IEA monthly report has led to some short term concern about weakness in the physical crude spot market, and the IEA has acknowledged OPEC’s firm role in stabilizing the market.

Controversially, the IEA believes that a big chunk of shale oil production is profitable at current prices, and hence insinuated that shale oil might threaten OPEC market share.

It also believes that US shale oil producers have quickly responded to oil price gains, winning market share over OPEC producers. However, even if US shale oil drillers added more oil rigs for almost three months in a row, the number of operating rigs is still less than half that of a year ago, at 289 rigs.

The latest figures from the Commodity Futures Trading Commission show that crude futures “long positions” on the New York Mercantile Exchange are at 668,078 contracts, down by 18,414 contracts from the previous week (at 1,000 barrels for each contract).