(Bloomberg) — Oil rose to the highest in nearly three months with positive Covid-19 vaccine developments paving the way for a more sustained recovery in oil demand.
Futures rose 5% in New York this week for a third straight weekly gain as Pfizer Inc. and BioNTech SE requested emergency authorization of their Covid vaccine Friday. Moderna Inc. also released positive interim results from a final-stage trial and said it’s close to seeking emergency authorization. Still, further gains were limited by broader market declines amid a dispute between the White House and the Federal Reserve over emergency lending programs.
“All the incremental vaccine updates are good news for 2021,” but in the meantime, “the virus spread is just going to get worse,” said Edward Moya, a senior market analyst at Oanda Corp. “We don’t have the two most important working arms of the government working together and this is going to weigh on risk appetite.”
Even with vaccines on the horizon, a recovery in oil demand faces obstacles with governments under pressure to tighten restrictions and curb the spread of the virus. U.K. Prime Minister Boris Johnson’s officials are considering tougher pandemic rules placed on broader regions of England next month after a national lockdown is set to end and the country returns to its tiered system. Meanwhile, the shift toward working from home may have a lasting chill on gasoline demand, according to Federal Reserve Bank of Kansas City President Esther George.
The recent climb in headline prices has been accompanied by significant moves in timespreads, where traders bet on the price of oil in different months. The spread between West Texas Intermediate for December 2021 delivery and the following month moved to backwardation, while the closely watched gap between December 2021 and 2022 WTI contracts is close to also flipping.
“The far out months are being bid up pretty good,” said Phil Streible, chief market strategist at Blue Line Futures LLC in Chicago. “People believe that it’s going to take some time to distribute the vaccine once they’re approved. Then things will really open up probably second half of next year.”
- West Texas Intermediate for December delivery, which expired Friday, rose 41 cents to settle at $42.15 a barrel
- The January contract rose 52 cents to end the session at $42.42 a barrel
- Brent for January settlement gained 76 cents to $44.96 a barrel. The contract rose 5.1% this week
Pfizer and BioNTech’s vaccine could be the first to be cleared for use, but first it must undergo a thorough vetting. The filing could enable its use by the middle to the end of December, the companies said in a statement. Yet, it could take at least three weeks for a U.S. Food and Drug Administration decision.
This week, crudes in West Texas rose to the highest premiums against Nymex oil futures in several months as ongoing shale production cuts have reduced supply and Asian demand has picked up. WTI in Midland is trading at 35 cents per barrel above WTI futures, the highest premium since July. On the Gulf Coast, the same grade is trading at 80 cents over Nymex crude futures, the widest premium since September.
Other oil-market drivers:
- Containers are arriving on the West Coast at unprecedented rates, providing support to a key pocket of the oil industry.
- China’s oil giants China National Petroleum Corp. and CNOOC Ltd. are considering acquiring Exxon Mobil Corp.’s remaining stake in an oil field in Iraq, which could fetch at least $500 million, according to people familiar with the matter.
- Oil storage in Cushing, Oklahoma, the home of WTI, is filling.
–With assistance from Sheela Tobben and Alex Longley.
© 2020 Bloomberg L.P.