Oil Prices Surge with Broader Rally
(Bloomberg) -- Oil surged to the highest in nearly 10 months in New York alongside a broader market rally as breakthroughs on U.S. stimulus talks combined with the Covid-19 vaccine rollout stoked optimism around a demand revival.
U.S. benchmark crude futures rose 1.3% on Tuesday after Senate Majority Leader Mitch McConnell said Congress will not leave for the year without a spending package, as talks continue to finalize Covid-19 relief. Meanwhile, Moderna Inc.’s vaccine was deemed safe by U.S. regulators, clearing the way for a second shot to quickly gain emergency authorization.
“Oil’s reacting to pretty significant increases in risk appetite,” said Bart Melek, head of global commodity strategy at TD Securities. “But with the second wave probably continuing to damage demand growth and inventories likely staying at somewhat elevated levels, the market is having second thoughts about going materially higher.”
But earlier, the International Energy Agency trimmed its demand forecast for 2021 and said the crude oil glut left behind by the coronavirus pandemic will not likely clear until the end of next year.
Oil futures have surged recently to highs not seen since the pandemic sent prices for a tailspin, supported by indications that a widespread vaccine rollout will boost the economy and aid demand. Imported containers loaded at the Port of Los Angeles in November increased by roughly a quarter year-over-year, signaling a bump in demand.
Still, the IEA’s dismal demand projections follow OPEC’s decision to cut its own forecasts for consumption in the first quarter of 2021 as the group and its allies prepare to start returning some supply to the market from January. Meanwhile, in the U.S., the number of Americans taking road trips during this Christmas is set to decline as much as 25% as people stay home amid soaring virus cases, according to GasBuddy.
“People are forgetting that there’s a couple of triggers that have to happen before oil demand really comes back,” said Stewart Glickman, energy equity analyst at CFRA Research. “The first half of the year we’re going to see some resurgence of weakness in oil demand, because it’s going to take time before everybody feels comfortable enough for things to start reopening fully.”
- West Texas Intermediate for January delivery climbed 63 cents to settle at $47.62 a barrel
- Brent for February settlement gained 47 cents to end the session at $50.76 a barrel, the highest since early March
The nearest portion of the futures and swaps markets are highlighting the mixed outlook. Brent’s prompt time spread was on the verge of a flip back into contango, where near-dated contracts are cheaper than later ones. That compares with a bullish backwardation of as much as 18 cents last week. At the same time, the Middle East Dubai benchmark has been moving further into backwardation.
Meanwhile, analysts expect a decline in U.S. crude stockpiles last week, according to a Bloomberg survey. The industry-funded American Petroleum Institute will release its figures later Tuesday ahead of a U.S. government tally on Wednesday.
Other oil-market news:
- The U.S. is seeking to build on the historic diplomatic recognition of Israel by the United Arab Emirates and Bahrain, holding joint talks on energy cooperation between the three Middle Eastern Countries.
- The president of OPEC reiterated that the oil producers’ cartel shouldn’t rush to increase output early next year and said energy demand was still fragile with the coronavirus raging across parts of the world.
- South Korean crude imports fell to 9.3 million tons in November, down 25% from a year earlier to the lowest level since June 2010, according to data posted on Korea Customs Service website.
- The total volume of clean fuels held in floating storage around Singapore fell 26% last week, with current freight rates too high to encourage hoarding at sea, according to Kpler.
--With assistance from Alex Longley.
© 2020 Bloomberg L.P.
WHAT DO YOU THINK?
Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.