Oil jumps by most since June on COVID vaccine progress

Oil in London jumped by the most since June as Pfizer Inc. reported a potential COVID-19 vaccine breakthrough.

Crude futures spiked following news the vaccine, being developed by Pfizer and BioNTech SE, prevented more than 90 per cent of infections in a study of tens of thousands of volunteers.

Markets globally surged. WTI climbed more than 10 per cent in New York, while global equities soared. It led to broader strength in the oil futures curve, with timespreads also moving sharply higher.

A vaccine “would be the most meaningful type of mitigator to the situation,” Saudi Energy Minister Prince Abdulaziz Bin Salman said prior to the Pfizer announcement at a conference on Monday. “We’re still hopeful that vaccine is found and that vaccine or vaccines spread and hopefully mobility would be regained.”

Since COVID first emerged, oil markets have been steadily recovering from the biggest crash in consumption in a generation. Transport use in Asia has rebounded strongly, but the renewed resurgence of the virus in Europe has continued to weigh on demand in the region. The emergence of a vaccine would not only help regions suffering form renewed lockdowns, but could also help spur the return of aviation demand –  the hardest hit corner of the market.

Prices

  • West Texas Intermediate for December delivery jumped as much as 11.3 per cent to trade at $41.33; the U.S. benchmark was trading up 9.6 per cent at $40.70 by 8:51 a.m. local time
  • Brent for January settlement rose 8.4 per cent to $42.77

The relief in the market was seen in the profits from turning crude into transport fuels. Gasoline cracks in the U.S. reached their highest since mid-October, while those in Europe also gained. Jet fuel was also gaining relative to the value of other transport fuels in Europe, Bloomberg fair value data show.

Prices had earlier rallied as Joe Biden declared victory in the U.S. presidential election and began preparations to navigate America’s pandemic-hit economy out of crisis, with potential shifts coming on a range of policies from fiscal stimulus to Iranian sanctions. At the same time, Saudi Arabia said that OPEC+ could extend oil cuts through 2022 as the group seeks to re-balance the glutted market.

Before news of the vaccine, speculators had built up bumper short positions in the market in recent weeks as the virus spread afresh. Such large positions often leave crude markets open to sharp spikes in the opposite direction as traders rush to cover bearish bets.

“That could be the potential game changer as it will speed up the demand recovery,” Ole Hansen, head of commodities strategy at Saxo Bank A/S said of the potential vaccine.

© 2020 Bloomberg L.P.

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