Oil on Friday just managed a weekly gain as an impasse in Washington over COVID-19 pandemic relief dimmed chances of an imminent boost to demand.
Futures in New York eased off a nine-month high alongside a broader market decline as bipartisan talks on another round of US fiscal stimulus stalled.
West Texas Intermediate for December delivery fell 0.5 percent to US$46.56 a barrel, rising 0.6 percent for the week.
A pullback was largely expected after Brent’s rally above US$50 earlier in the week, with a key technical benchmark settling in overbought territory on Thursday.
Brent for December delivery on Friday lost 0.6 percent to settle at US$49.97 a barrel, up 1.5 percent for the week.
“The vaccine opens the way for a future where demand returns to normal, and that’s what the market’s looking at,” said Bob Yawger, director of the futures division at Mizuho Securities Co. “There will be some pain along the way, but the vaccine acts as a silver bullet.”
With the market outlook improving, US crude futures have gained about 30 percent since the end of October.
Global consumption of gasoline and diesel rose to a two-month high last week, according to an index compiled by Bloomberg, suggesting that the effects of recent coronavirus lockdowns is waning.
Buying by Chinese and Indian refiners also indicates Asian physical demand would likely remain supported for another month.
Still, there are some reasons to give pause, as the market this week shrugged off the second largest US crude build on record.
At the same time, oil price upside could be capped early next year as concerns of virus-related lockdowns and rifts in OPEC present potential near-term headwinds, TD Securities wrote in a report.
“Crude oil markets have been making a strong recovery in the back-end of the year,” TD Securities commodity strategists, including Bart Melek, said in the report. “But while the balance of risks still points in an upward direction, crude is not immune to potential hiccups.”
The market has taken the OPEC+ alliance’s decision to restore a small amount of output next month in stride and the oil futures curve is signaling that investors expect further gains in consumption.
In the US, government data showed driving on US highways increased last week, though it still remains off for this time of year.
However, amid the recuperation in oil demand, a struggle over market share could give rise to more volatility in oil markets.
It would be increasingly difficult for OPEC and its allies to walk the tightrope between volume and price, with the producer group looking to both increase revenue and prevent a sizable rebound in US market share, S&P Global Platts head of analytics said in a Webinar on Friday.
“After the feeding frenzy yesterday, everyone’s just taking a breath,” said Gary Cunningham, a director at Stamford, Connecticut-based Tradition Energy.
Additional reporting by staff writer
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