Dubai: Oil rose toward $46 a barrel as vaccine breakthroughs and expectations OPEC+ will delay ramping up production spurred demand optimism that has seen analysts come out with rosy price forecasts for next year.
Futures in New York climbed 1.4% after closing at an eight-month high. Bank of America Corp. and Goldman Sachs Group Inc. have projected price gains for next year in recent days amid expectations for a swift recovery in energy demand. In another positive sign for consumption, Premier Li Keqiang said China, the world's biggest oil importer, will likely return to a more "proper" range of economic development in 2021.
Crude surged 4.3% on Tuesday as it was swept up in a broad markets rally after the triggering of a formal transition to U.S. President-elect Joe Biden. The process, which gives investors more certainty about the political situation in the world's largest economy, pushed the S&P 500 Index to an all-time high.
Oil's value has increased by more than a quarter this month amid positive results for three Covid-19 vaccines, reclaiming heights not seen since the pandemic devastated global demand in March. The rally has happened even as a resurgent virus prompted more lockdown measures in Europe and the U.S.
The investor mood has been lifted by the developments around vaccines and the likely extension of the OPEC+ output cuts, said Daniel Hynes, a senior commodity strategist at Australia & New Zealand Banking Group Ltd. "The market is fairly well-priced and should continue gains in the coming days."
Goldman Sachs said in a note that it expects OPEC+ to delay its planned 2 million barrel a day output ramp-up in January by three months. It forecast Brent would average $47 a barrel next quarter if this happens. Bank of American Corp. said Brent could reach $60 in the summer of 2021 as the easing of travel restrictions boosts demand for fossil fuels.
The optimism is reshaping oil's forward curves, with two of the most-watched inter-month price spreads moving into backwardation, when near-dated contracts are more expensive that later-dated ones. Global benchmark Brent's prompt timespread and the so-called WTI red spread - which measures futures for December of next year to December 2022 - have both flipped to backwardation this week.
The American Petroleum Institute, meanwhile, reported crude inventories swelled by 3.8 million barrels, according to people familiar with the data. That would be the third straight week of rising stockpiles if confirmed by government figures due later on Wednesday. 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.
While oil prices are rising on vaccine developments, the pandemic's effects are still being felt by refiners. Total SE said it will halt its Donges refinery in France for a few months as it's currently unprofitable due to weak demand. Several refineries in the U.S. have shut because of the collapse in fuel demand.