Oil Futures Stall as Headwinds Dull Rally Over Vaccines

Brian L Milne
By  Brian L. Milne , DTN Refined Fuels Editor

CRANBURY, N.J. (DTN) -- Nearest delivered oil futures on the New York Mercantile Exchange and the Brent contract on the Intercontinental Exchange were little changed early Friday, stalling near Thursday's fresh highs, as growing unemployment claims and sluggish retail sales in the United States dulls the excitement over this week's rollout of the Pfizer vaccine in the states and endorsement by a U.S. Food and Drug Administration panel for a second vaccine by Moderna.

The U.S. and international crude benchmarks and ULSD contracts softened off fresh better than nine-month highs, and the RBOB contract from a near four-month high, with pressure also exerted by modest strength in the U.S. Dollar Index, which reversed off an 89.640 better than 2 1/2-year low.

In early trading, NYMEX January West Texas Intermediate futures were little changed near $48.35, with the February contract at a $0.15 premium, while ICE February Brent futures softened to $51.40 per barrel (bbl). The front end of Brent's forward curve moved back into contango, with the market structure for both WTI and Brent highlighting the market's expectation that a global demand recovery won't be realized in the opening months of 2021. NYMEX January ULSD futures eased to $1.4931 gallon and January RBOB futures softened to $1.3840 per gallon following Thursday's 3.5-cent rally.

Oil futures rallied Thursday on news Pfizer's production of its vaccine was moving swiftly, and that there would be a greater supply of the drug this year and into early 2021 than previously expected. Japan is expected to approve the Pfizer vaccine today. An FDA panel's endorsement of Moderna's vaccine Thursday also paves the way for granting the drug Emergency Use Authorization, with the rollout of vaccines seen as early as next week.

However, rolling out the vaccines to the masses will take time, and any sturdy recovery in oil demand globally won't be realized for months. Reuters reported a scientist in France said the country wouldn't return to a pre-pandemic normal until the autumn.

The vaccine rollouts are occurring as COVID-19 infections are skyrocketing, and deaths from the disease rapidly climbing. A series of state-led restrictions on business activity is again leading to slowing economic growth causing financial pain and hardship for numerous small businesses and individuals. The financial harm was on display in retail sales data in the United States, declining a more than expected 1.1% in November, with the drop in a wide array of categories, including restaurants and bars, clothing, and electronics. On Thursday, the Department of Labor reported initial unemployment claims continued to increase in early December, up 23,000 to 885,000 during the week ended Dec. 12.

Congressional leaders are under pressure to deliver more financial relief, but progress remains at a snail's pace. It appears likely the government will temporarily shut down at midnight since congressional leaders have tied COVID-19 relief to legislation funding the government. Congress is expected to remain in session during the weekend to hammer out legislation to both fund the government and provide relief that is deemed critical for millions of Americans and small businesses.

Brian L. Milne can be reached at brian.milne@dtn.com

Brian Milne