WTI Futures Surge 3% as 2nd Vaccine Boosts Demand Outlook

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Crude and refined product futures on the New York Mercantile Exchange and the Brent contract on the Intercontinental Exchange settled Monday's session higher, lifting front-month West Texas Intermediate above $41 barrel (bbl) as traders increased their bets that an effective and safe vaccine would boost global oil demand next year following a successful Stage 3 trial for a second coronavirus vaccine that showed 94.5% efficiency in blocking the virus.

The decreased likelihood that a new U.S. administration would push for a second nationwide lockdown to tackle a winter surge in new cases further fueled risk-on trade across financial and commodity markets.

On the session, December WTI futures advanced $1.20 to settle at $41.34 bbl and the January Brent contract on ICE added more than $1 for a $43.82 bbl finish. December ULSD futures surged 2.47 cents to $1.2289 gallon, while front-month RBOB futures climbed 2.14 cents to $1.1468 gallon.

U.S. dollar index finished Monday's trade at a 92.63 1-week low, boosting WTI futures, with the currency having an inverse relationship with the U.S. crude benchmark.

After another blowout rally, the Dow Jones Industrial Average is on track to reset its all-time high reached in February, closing the session just below 30,000 at 29,950. DJIA gained 470.63 points and the S&P 500 Index advanced 1.2% to 3,626.91.

Monday's risk-on trade came after morning news that U.S. pharmaceutical company Moderna said their experimental coronavirus vaccine proved 94.5% effective against the coronavirus. The test group included over 40,000 volunteers. Last week, Pfizer together with German drug maker BioNTech announced their vaccine was also more than 90% effective during Stage 3 trials, while Russian's SputnikV vaccine showed similar results.

While the developments are promising, production and distribution challenges will limit how quickly populations around the globe will receive the vaccines, with analysts noting not to expect a quick turnaround in fuel demand. A meaningful recovery in global oil demand is not expected until the second half of 2021.

Top health officials in Joe Biden's transition team walked back comments made last week suggesting a 6-week U.S. nationwide lockdown would be imposed in spring 2021. Biden's coronavirus task force co-chair reassured the markets that a nationwide lockdown is "a measure of last resort." Still, local governments in more than half of the states began tightening quarantine restrictions last week which doesn't bode well for fuel demand heading into the Thanksgiving and Christmas holidays.

Separately, crude output from the seven top tight oil and gas production regions in the United States is expected to decline 140,000 barrels per day (bpd) from this month to 7.513 million bpd in December, according to the Energy Information Administration's monthly Drilling Productivity Report released Monday afternoon. Oil production is expected to decline in six regions, with output in the Permian region seen down 37,000 bpd to 4.299 million bpd, Bakken oil production is seen at 1.133 million bpd, down 33,000 bpd, and Eagle Ford output at 983,000 bpd, down 27,000 bpd.

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

Liubov Georges