Oil was steady near $40 a barrel in New York with demand concerns keeping prices in check after crude was swept up in a broader market rally following news of a potential coronavirus vaccine breakthrough.
Futures recovered after falling as much as 2.2% earlier in the session. Oil surged the most since May on Monday following early findings that a vaccine developed by Pfizer and BioNTech SE protects most people from Covid-19. However, even if it does prove effective, it will still take some time to approve and roll out, meaning the resurgent virus and the likelihood of more lockdown measures will continue to weigh on the short-term outlook.
Outside researchers said they would need much more data to assess how good the vaccine is, while JPMorgan Chase & Co. predicted global demand still wouldn’t get back to pre-virus levels until the end of next year. The oil market is also grappling with rising supply from Libya, with OPEC+ meeting at the end of the month to decide whether to delay a planned easing of output cuts.
“While we have some positive news regarding a vaccine, realistically it is still some distance away,” said Warren Patterson, head of commodities strategy at ING Bank NV in Singapore. “The fundamentals for oil, and specifically demand, do not change too much in the short term. We still need OPEC+ to roll over cuts into the first quarter.”
Monday’s price jump was magnified by short-sellers who were forced to close their positions in a rush, triggering a buying spree that exaggerated the impact of the vaccine news. In the options market, bets on the WTI curve flipping to backwardation — when nearer-dated contracts trade at a premium to later-dated ones — indicate underlying expectations for improving demand.
The shares of drillers in the Asia-Pacific region were lifted by Monday’s rally, with Oil Search Ltd. among the top performers on the ASX 200 Index in Australia and China’s three oil majors among the top shares on the Hang Seng Index in Hong Kong.