Oil nears $41 as vaccine buoying demand hope

Bloomberg

Oil extended gains, following Monday’s rally on optimism that a potential Covid-19 vaccine could boost a recovery in transport demand.
Crude futures in New York approached $41 a barrel, after advancing more than 10% at one point. It comes after early findings showed that a vaccine developed by Pfizer Inc. and BioNTech SE protects most people from the virus.
While headline prices are gaining, there have also been sharp moves in the structure of the curve. Brent futures for six months ahead were at their strongest versus 12 months out since March, a sign that traders are growing more positive on supply and demand balances for the second half of the year.
Crude has mirrored a wider rally in equities markets, on optimism that a vaccine will help mobility return to normal levels. In the near term, the market continues to wrestle with a mixed demand picture, with Europe still under new virus restrictions. Consumption is improving in China, while oil demand in Japan is roughly back to normal.
“For oil markets, the advent of vaccines could turn the focus from the short-term supply demand question onto how the oil market might cope with a recovery in demand in 2021,” said Callum Macpherson, head of commodities at Investec Bank Plc. “It may help to embolden governments into easing lockdowns.”
The price rally came after a mammoth short position had built up in the oil market. That forced a buying spree as traders rushed to cover those bearish bets. It also saw a rally in some refined products, most notably jet fuel, as optimism grows that mobility may start to return to normal.
And though the market has been awash with optimism in recent days, there are reasons to remain cautious. Global oil demand still won’t get back to pre-virus levels until the end of next year, JPMorgan Chase & Co. analysts including Natasha Kaneva wrote in a report. The chief executive of Vitol Group also warned on Tuesday that there are difficult months ahead for oil demand.