Oil rose to the highest in nearly three months with positive COVID-19 vaccine developments paving the way for a more sustained recovery in oil demand.
Futures in New York rose for a third straight week this week as Pfizer Inc and BioNTech SE on Friday requested emergency authorization of their COVID-19 vaccine.
Moderna Inc also released positive interim results from a final-stage trial and said that it is close to seeking emergency authorization.
Still, further gains were limited by broader market declines amid a dispute between the White House and the US Federal Reserve over emergency lending programs.
“All the incremental vaccine updates are good news for 2021,” but in the meantime, “the virus spread is just going to get worse,” said Edward Moya, a senior market analyst at Oanda Corp. “We don’t have the two most important working arms of the government working together and this is going to weigh on risk appetite.”
Even with vaccines on the horizon, a recovery in oil demand faces obstacles with governments under pressure to tighten restrictions and curb the spread of the virus.
British Prime Minister Boris Johnson’s officials are considering tougher pandemic rules for broader regions of England next month after a national lockdown is set to end and the country returns to its tiered system.
Meanwhile, the shift toward working from home could have a lasting chill on gasoline demand, Kansas City Fed President Esther George said.
On Friday, West Texas Intermediate (WTI) for December delivery rose 1.24 percent to US$42.42 a barrel, up 5.65 percent for the week.
Brent Crude for December delivery increased 1.72 percent to US$44.96, rising 4.78 percent from a week earlier.
The recent climb in headline prices has been accompanied by significant moves in timespreads, where traders bet on the price of oil in different months.
The spread between WTI for December 2021 delivery and the following month moved to backwardation, while the closely watched gap between December 2021 and 2022 WTI contracts is close to also flipping.
“The far out months are being bid up pretty good,” said Phil Streible, chief market strategist at Blue Line Futures LLC in Chicago. “People believe that it’s going to take some time to distribute the vaccine once they’re approved. Then things will really open up probably second half of next year.”
This week, crudes in West Texas rose to the highest premiums against Nymex oil futures in several months as ongoing shale production cuts have reduced supply and Asian demand has picked up. WTI in Midland is trading at US$0.35 per barrel above WTI futures, the highest premium since July.
On the Gulf Coast, the same grade is trading at US$0.80 over Nymex crude futures, the widest premium since September.
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