Oil prices touched their highest level since March on Tuesday, rising towards $47 a barrel after a raft of positive vaccine news sparked a comeback in one of the sectors hardest hit by the pandemic.
Brent crude, the international benchmark, hit a high of $46.72 a barrel in Asia trading, as traders bet that travel and other energy-intensive industries would pick up in 2021 if coronavirus can be brought under control. The marker is up 24 per cent so far in November, putting it on course for one of its largest monthly percentage gains in recent decades.
Analysts at PVM oil brokerage in London said that traders were increasingly treating the prospect of vaccines as a “game changer” for the energy sector, though prices still remain well below the near $70 a barrel they traded at before the pandemic.
“The fight against the coronavirus is intensifying and is proving to be increasingly successful by the week,” said Tamas Varga at PVM. A rally driven by FOMO — or “fear of missing out” — has now become a “fundamentally justifiable price rise,” he said.
Oil prices have also been buoyed by expectations that Opec and allies including Russia will extend the duration of their production cuts when they meet next week, to offset weak demand over the winter months.
The expanded Opec+ group, which slashed production in April as oil demand collapsed during widespread lockdowns, was due to return about 2m barrels a day of production to the market in January, but is increasingly expected to delay the return of additional production.
“We continue to view a co-ordinated action to curtail output as the optimal near-term action given the still elevated inventory overhang and with the current wave of infections surprising by its breadth and intensity,” analysts at Goldman Sachs said.
Global oil demand, which averaged about 100m b/d before the pandemic, has been down by about 10 per cent on average this year as flights have been grounded and as many people have worked from home rather than commuting to the office.
Brent crude prices fell below $20 a barrel for the first time in almost two decades in April, and have averaged just $42 a barrel this year compared to $64 a barrel in 2019 and $71 a barrel in 2018.
Oil companies have been hit hard by the slump, with shares in BP and Royal Dutch Shell dropping by about 60 per cent between January and the end of October. But they too have been buoyed by the vaccine news, gaining 40-50 per cent since then.
The structure of the oil market is also strengthening, as Brent contracts for delivery in January — which were previously at a large discount to those due later in 2021 — have moved closer to parity, a sign traders expect demand to improve.