(Bloomberg) — Oil was little changed in the face of the second largest U.S. crude build on record as the market held onto hopes of an upcoming vaccine rollout lifting demand from its pandemic-induced slump.
U.S. benchmark crude futures in New York pared losses after falling as much as 1.4% earlier, though Brent eked out a gain. Canada became the latest country to approve a Covid-19 vaccine, with the country expecting to receive its first batch of Pfizer Inc. and BioNTech SE’s coronavirus vaccine next week. Crude prices were supported early Wednesday after militants attacked two wells in the Khabbaz oil field in Iraq, though the nation’s Oil Ministry said the wells were only producing around 2,000 barrels a day before the attack.
The rebound from session lows followed an initial selloff after an Energy Information Administration report showed crude stockpiles rose by more than 15 million barrels last week — its biggest weekly gain since April. Increases in gasoline and distillate inventories added to bearish sentiment, as gauges of demand for both fuels declined, pressuring the near-term consumption outlook.
“Notwithstanding the recent disappointing inventory, demand data and a poor short-term outlook, we are optimistic on the oil market into 2021,” Bart Melek, the head of global commodity strategy at TD Securities, said in a note. Crude futures could approach $50 a barrel once “a robust and sustained rebound materializes.”
Oil has chopped around nine-month highs this week as the market holds out for an upcoming vaccine rollout to spur another leg of demand recovery. In the meantime, worries about the pace of the demand recovery continue to weigh on sentiment as governments reimpose restrictions to fight off the virus’s spread. Chancellor Angela Merkel urged Germans to make an additional sacrifice over the holidays to contain the coronavirus, while in the U.S., Health and Human Services Secretary Alex Azar warned Americans to avoid crowded indoor social gatherings.
“If there is a successful vaccine, you will get demand coming back,” said Tariq Zahir, managing member of the global macro program at Tyche Capital Advisors LLC. “But even when it comes back, you have a lot of people that are out of a job and a lot more businesses that are going to be affected.”
- West Texas Intermediate for January delivery edged down 8 cents to settle at $45.52 a barrel
- Brent for February settlement gained 2 cents to end the session at $48.86 a barrel
The EIA report also showed crude exports fell to the lowest since October 2018, helping bring the U.S. back to being a net petroleum importer for the first time since September. Meanwhile, distillate stockpiles, which had been declining at a fairly steady clip, rose the most since May as diesel demand fell.
“There’s not really much of anything to be positive about” in the EIA report, said Matt Sallee, portfolio manager at Tortoise, a firm that manages roughly $8 billion in energy-related assets. “The mobility data is going to tick down with the infection rate so high. As the the vaccine gets rolled out, that part will improve, but it’s going to be an issue for the time being.”
Still, moves along the forward curve continue to signal expectations for an improving supply and demand picture. Brent’s nearest contract moved back to trading at a premium to the following month, while the spread between the closest December contract and December 2022 also trades in a bullish backwardation structure.
In physical oil markets, demand from Asian buyers appears robust for now. Indian Oil Corp. issued another tender for prompt cargoes of Middle Eastern crude, while China’s teapots have been buying crude from as far afield as the North Sea for arrival early next year. Outside of Asia, Brazil remains a lone bright for demand, with fuel demand expected to surpass 2019 levels.
Other oil-market news
- Egypt has bought more derivative contracts to protect itself against an increase in oil costs, as some importers seek to take advantage of this year’s price rout.
- Trafigura Group Ltd. racked up record annual trading profits, demonstrating how the global disruption caused by the coronavirus was a boon for dealers of commodities from crude to copper.
- The United Arab Emirates awarded oil-exploration rights to Occidental Petroleum Corp., moving quickly to expand output capacity just a week after the country clashed with its OPEC partners over production limits.
- Royal Dutch Shell Plc is shaking up its mighty in-house trading unit, with the retirement of Mark Quartermain as head of crude — a job widely seen as the most powerful in the global oil-trading industry.
–With assistance from Alex Longley, Sheela Tobben and Robert Tuttle.
© 2020 Bloomberg L.P.