Oil rises as vaccine hopes outweigh poor fuel demand

London — Oil prices rose on Tuesday as hopes that a Covid-19 vaccine could be on the horizon outweighed the expected negative impact on fuel demand of new lockdowns to curb the virus.

Brent crude futures rose 45c, or 1.1%, to $42.85 by 10.30am GMT, while US West Texas Intermediate (WTI) crude futures gained 34c, or 0.8%, to $40.63.

Both contracts jumped 8% on Monday, in their biggest daily gains in more than five months, after drugmakers Pfizer and BioNTech said an experimental Covid-19 treatment was more than 90% effective based on initial trial results.

Mass rollouts, however, are likely to be months away and subject to regulatory approvals.

“A viable vaccine is unequivocally game-changing for oil — a market in which half of demand comes from moving people and things around,” JPMorgan said in a note.

“But as we have written previously, oil is a spot asset that must first clear current supply and demand imbalances before one- to two-year out prices can rise.”

Prices were also boosted by comments from Saudi Arabia’s energy minister, who said on Monday that oil cartel Opec and its allies, including Russia (Opec+), could tweak their supply cut pact if demand slumps before the vaccine is available.

Opec+ agreed to cut supply by 7.7-million barrels per day (bpd) from August to end-December and then ease cuts by about 2-million bpd in January.

But the negative impact that renewed lockdowns in Europe are having on fuel demand, as well as rising Libyan production, kept prices in check.

Traffic in London, Paris and Madrid fell sharply in November after a peak in October, according to data provided by location technology company TomTom, which covered mobility until Sunday evening.

France, the UK, Spain and Poland are under the strictest lockdowns in Europe, according to the Oxford stringency index that assesses indicators such as school and workplace closures, and travel bans.

Meanwhile, Libyan production has risen above 1-million bpd in recent days from 100,000 bpd in early September. 

Reuters