Oil hits highest since March on Biden transition, vaccine hopes

Bloomberg

Oil reached its highest level since March as the start of the US presidential transition process buoyed broader markets and a string of positive Covid-19 vaccine news continued to support the demand outlook.
Futures rose to their highest since March in New York, alongside the back-end of the forward curve strengthening markedly into backwardation. The structures of both WTI and Brent are firming amid signs of strength in Asia physical markets and prospects for a vaccine roll out. Meanwhile, the triggering of a formal transition process to US President-elect Joe Biden lifted stock markets on Tuesday.
With coronavirus vaccines appearing more likely in recent weeks and crude demand in Asia soaring, the gains in the shape of the oil futures curve have been even more stellar than the almost 24% rise in US benchmark crude futures so far this month. WTI’s nearest December contract strengthened on Tuesday to a more than 20-cent premium to the one a year out in a bullish structure known as backwardation, signalling expectations for an improving supply and demand picture next year.
“By some time in the middle of next year, the economic environment should really move quite rapidly towards normalisation, which ultimately means that demand for petroleum products should start to recover,” said Bart Melek, head of global commodity strategy at TD Securities. And with much of the election uncertainty in the rear view mirror, “we should see a transition to a Biden government and hopefully stimulus.”
The start of the transition process for the US presidency provides welcome certainty following weeks of Biden’s staff being locked out of interacting with federal agencies. Meanwhile, Biden’s choice of former Federal Reserve chair Janet Yellen for Treasury Secretary is raising hopes for more economic stimulus that could provide a much needed demand boost.
Elsewhere, a rebound in Chinese local flights is also aiding demand for jet fuel, the hardest-hit oil product. That broad recovery has helped drive the market’s return to backwardation, which is significant as it often attracts passive flows into the market, leading to further price rallies.