Oil Prices Defying Law of Gravity

Andrew Cummings
November 25, 2020

Oil rose about 4% on Tuesday to touch highs not seen since March as a third promising coronavirus vaccine raised hope for fuel- demand recovery and U.S. President-elect Joe Biden began his transition to the White House.

AstraZeneca said on Monday its COVID-19 vaccine was 70% effective in trials and could be up to 90% effective, providing another weapon in the fight to control the pandemic after positive results from other major pharmaceutical developers.

In point of fact, apart from a flurry of upbeat media headlines on advancements of pandemic vaccines, crude oil futures' prices scheduled to be expired on December 21 ramped up further after Markit US Composite PMI data had revealed that the US business activity had grown by its fastest pace in more than five years in November, while upbeat factory data from China had brightened up the fundamentals for both US and United Kingdom crude oil futures' prices.

"The petroleum complex is the vaccine trade", said John Kilduff, partner at Again Capital in NY. West Texas Intermediate crude gained 33 cents, or 0.7%, to $45.24, after rising more than 4% on Tuesday.

Brent crude was up 30 cents, or 0.6%, at $48.16 a barrel by 1211 GMT, having risen nearly 4% in the previous session.

Oil has reached its highest price since March on the back of the likelihood of a vaccine being rolled out within the next month. The enthusiasm has pushed both Brent and WTI futures well above the $40 mark.

In the United States, President Donald Trump's administration gave President-elect Joe Biden access to resources enabling him to take over in January after an extended delay despite Trump's loss in the November 3 election.

They are now due to increase production by 2 million barrels per day - about 2% of global demand before the pandemic - from January.

USA crude oil inventories likely edged lower last week, while distillate stockpiles were seen decreasing for a 10th straight week, a preliminary Reuters poll showed on Monday, ahead of reports from the American Petroleum Institute and the Energy Information Administration (EIA). Inventories probably rose by 225,000 barrels last week, according to the median estimate in a Bloomberg survey before the official Energy Information Administration data.

(Fuel Oil, means 380 HS and VLSFO together).

A weak dollar has also provided support for crude prices as a lower dollar makes oil less expensive for buyers.

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