Oil rises to 12-week high on COVID vaccination optimism

Oil touched its strongest level since early September as signs that COVID-19 vaccinations in the U.S. could be underway within three weeks improved the demand outlook.

Markets broadly rallied after AstraZeneca Plc became the latest company to report a vaccine that protects most people from coronavirus. Vaccinations will “hopefully” start as soon as Dec. 11 or Dec. 12, Moncef Slaoui, head of the American government’s Operation Warp Speed vaccine acceleration program, said on CNN on Sunday. A weaker dollar also buoyed crude.

The prospect of a treatment has reshaped the oil futures curve, with nearby prices rallying more than later ones. Small pockets of the WTI curve moved into a bullish backwardation structure on Friday, and those gains continued early Monday.

Houthi rebels in Yemen, meanwhile, claimed in a statement to have struck a Saudi Aramco fuel distribution center in Jeddah on the kingdom’s west coast with a missile. Aramco didn’t immediately respond to a request for comment.

Crude has jumped around 20 per cent in November as pharmaceutical companies made rapid progress on readying anti-virus drugs. Optimism that relief from the pandemic is in sight has seen the market look past surging infections and more lockdown measures. The U.S. is now averaging almost 110,000 more daily cases than a month ago, while the opening of a Hong Kong-Singapore travel bubble has been delayed by two weeks due to an uptick in cases in the Chinese territory.

“Positive risk sentiment, a weaker dollar and those unconfirmed missile attacks are supporting oil,” said UBS analyst Giovanni Staunovo.

Prices

  • West Texas Intermediate for January delivery rose 1.5 per cent to $43.04 a barrel at 10:48 a.m. in London
  • Brent for January settlement added 1.6 per centto $45.68 a barrel

The rapid firming of the oil futures curve is a sign that the market expects a rapid tightening of supplies ahead, RBC analysts including Michael Tran and Helima Croft wrote in a report. The move higher has been one of the largest in recent years, they said.

And there are signs that despite hits to demand in Europe and the U.S., the market is already seeing falling inventories. The amount of oil stored on tankers at sea fell to 115 million barrels last week, the lowest since April, according to Vortexa data.

© 2020 Bloomberg L.P.

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