Oil extended gains, trading at its highest level since March, on mounting optimism that recent breakthroughs on a COVID-19 vaccine will lead to a swift recovery in global energy demand next year.
Futures in New York rose 1.3 per cent to trade above $45 a barrel. That followed a flurry of tenders from Chinese and Indian refiners seeking crude oil for January, the latest sign of roaring strength in Asian markets.
With the prospect of a coronavirus vaccine improving oil’s longer-term outlook, there’s been a renewed rally in the forward curve. On Wednesday the much-watched spread between Brent’s nearest two December contracts briefly flipped into a bullish backwardation for the first time since March.
Oil’s value has risen by more than a quarter this month amid positive vaccine results. With the market’s prospects picking up, Brent crude could reach $60 a barrel by the summer of 2021, according to Bank of America Corp. Attention is now turning to the next move from the Organization of Petroleum Exporting Countries and its allies, who meet next week to discuss production policy.
“The recent news around COVID-19 vaccines has boosted crude prices as markets start to look to a return to some sort of normality in 2021,” said HSBC Bank analyst Gordon Gray. “We expect OPEC+ to err on the side of caution as it evaluates how the market evolves.”
- West Texas Intermediate for January delivery rose 1.3 per cent to $45.51 a barrel as of 10:57 a.m. in London
- Brent advanced 1.6 per cent to $48.64 a barrel
As well as the structure of the futures curve, prices further out have also been moving higher. WTI prices for 2021 were at their strongest level since March early on Wednesday, while those for 2022 topped $45 to reach their highest since September. The higher forward prices are boosting the incentive for oil producers to lock in their supplies for the coming years.
The American Petroleum Institute, meanwhile, reported a 3.8 million-barrel increase in U.S. crude inventories, according to people familiar with the data. That would be a third straight week of gains if confirmed by government figures due later on Wednesday. The median estimate in a Bloomberg survey shows inventories probably rose by 225,000 barrels last week.
© 2020 Bloomberg L.P.