Crude Futures Stall Near 2-Month Highs Amid Q4 Demand Concerns

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- An overnight rally in oil futures on the New York Mercantile Exchange and Intercontinental Exchange faded Wednesday afternoon with West Texas Intermediate and Brent crude ending slightly higher after stalling near 2-month highs, while oil products eased as downbeat near-term demand projections amid a record surge of coronavirus cases in the United States and European Union countered improved sentiment over successful vaccine trials announced by Pfizer and BioNtech earlier this week.

The rollout of a new vaccine is not an easy endeavor and likely to stretch well into next year even if it gets clearance from U.S. Food and Drug Administration this month, dulling enthusiasm for a quick return to normal after more than nine months of a pandemic. This means a genuine demand recovery is still six to 12 months away, which is reflected in the forward curve for the Brent contract, with the international crude benchmark holding below $45 barrel (bbl) through midsummer 2021.

This morning, the Organization of the Petroleum Exporting Countries downgraded their global oil demand expectations for both this year and 2020 by 300,000 barrels per day (bpd) from their outlook in October. OPEC now projects the world oil consumption rate to fall 9.8 million bpd from 2019 to 90 million bpd. The downward revision was mostly attributed to renewed lockdowns in the European Union and tightening quarantine restrictions in the United States as governments struggle to slow the surge of coronavirus infections. OPEC expects global oil demand to increase annually by 6.2 million bpd in 2021 to 96.26 million bpd, with demand in the third quarter projected at 96.61 million bpd and at 97.09 million bpd in the fourth quarter.

These concerns were echoed Wednesday by European Central Bank Head Christine Laggard who warned the economy could face a "bumpy" and "stop-and-start" recovery despite good news about the vaccine development.

"We are seeing a strong resurgence of the virus and this has introduced a new dynamic," said Laggard. "While the latest news on a vaccine looks encouraging, we could still face recurring cycles of accelerating viral spread and tightening restrictions until widespread immunity is achieved."

Jens Spahn, Germany's health minister, noted to achieve herd immunity about two-thirds of a country's population would need to take the vaccine.

Earlier in the session, oil prices were boosted by bullish inventory reported late Tuesday by the American Petroleum Institute detailing a larger-than-expected 5.147 million bbl draw in U.S. commercial crude oil inventories and nearly 9 million drop in refined fuels stockpiles. Commercial gasoline inventories dropped 3.297 million bbl, nearly three time more than estimated and distillate fuel supplies decreased 5.619 million bbl.

Traders now await the release of official data from the Energy Information Administration delayed this week until late Thursday morning by Wednesday's observance of Veterans Day in the United States.

On the session, the December WTI futures settled flat near a $41.45 bbl 2-month high on the spot continuation chart and the January Brent contract on ICE settled slightly higher at $43.80 bbl, dropping back from a $45.30 bbl high. December ULSD futures slid 0.67 cents to $1.2458 gallon, reversing from a $1.2982 3-month high on the spot continuous chart. December RBOB futures reversed from a $1.2341 1 -month spot high to settle down 1.82 cents at $1.1759 gallon.

Liubov Georges can be reached at liubov.georges@dtn.co

Liubov Georges