Oil price rising on demand optimism and vaccine breakthrough

Bright outlook: An aerial view of a Bank of America buidling in Las Vegas, Nevada. The banks says that global benchmark Brent crude could reach US$60 a barrel by the summer of 2021, as the easing of travel restrictions boosts demand for fossil fuel. — AFP

SINGAPORE: Oil kept rising after closing at a eight-month high on increasing optimism that recent Covid-19 vaccine breakthroughs will lead to a swift recovery in global energy demand next year.

Futures in New York climbed around 1% to trade above US$45 a barrel as a broader financial markets rally continued. Global benchmark Brent crude could reach US$60 a barrel by the summer of 2021, as the easing of travel restrictions boosts demand for fossil fuels, according to Bank of America Corp.

In another positive sign for consumption, premier Li Keqiang said China, the world’s biggest oil importer, will likely return to a more “proper” range of economic development in 2021.

China and Japan also agreed to restart some two-way travel by the end of November. Crude surged 4.3% on Tuesday after the triggering of a formal transition process to United States President-elect Joe Biden.

Oil’s value has increased by more than a quarter this month amid positive results for three Covid-19 vaccines. It’s reclaimed heights not seen since the pandemic devastated global demand in March even as a resurgent virus prompted more lockdown measures. Expectations that Opec and its allies will delay an increase in production planned for January have also aided the rally.

The investor mood has been lifted by the developments around vaccines and the likely extension of the Opec+ output cuts, said Daniel Hynes, a senior commodity strategist at Australia & New Zealand Banking Group Ltd. “The market is fairly well-priced and should continue gains in the coming days.”

Goldman Sachs Group Inc said in a note that it expects Opec+ to delay its planned two million barrel a day output ramp-up by three months. It forecast Brent would average US$47 a barrel next quarter if this happens.

The optimism is reshaping oil’s forward curves. Brent’s prompt timespread and the so-called WTI red spread – which measures futures for December of next year to December 2022 – have both flipped to backwardation this week, a bullish signal that suggests the market may be moving into deficit.

The American Petroleum Institute, meanwhile, reported crude inventories swelled by 3.8 million barrels, according to people familiar with the data. That would be the third straight week of rising stockpiles if confirmed by government figures due later. — Bloomberg

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