Oil Steady as Vaccine Impact on Omicron Buoys Demand Outlook

Dec 8, 2021

(Bloomberg) Oil steadied as research indicated that existing Covid-19 vaccines are effective against the new virus variant, supporting the outlook for fuel consumption.Futures held near $72 a barrel in New York as Pfizer Inc. and BioNTech SE said initial lab studies show a third dose of their shots neutralize the omicron variant. Crude gained almost 9% over the past two days on signs that oil demand has so far withstood the emergence of the new strain.

Prices were under pressure earlier, following American Petroleum Institute estimates that crude inventories at the U.S. storage hub in Cushing, Oklahoma, rose by 2.4 million barrels last week — the biggest increase since February. Traders will be looking to see whether government data due later on Wednesday confirms the findings.

Crude stockpiles in U.S. key storage hub have risen for 3 straight weeks

“Cautious optimism is prevailing that the hit from omicron on the global economy and thus energy demand will be less than initially feared,” said Stephen Brennock, an analyst at brokerage PVM Oil Associates Ltd.

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China continues to tackle sporadic outbreaks, with one eastern city locking down a district to curb the spread. Omicron has led to some restrictions on air travel, and researchers in South Africa said the strain’s ability to evade vaccine and infection-induced immunity is “robust but not complete.” They added that booster shots would likely reduce chances of infection.

Prices
West Texas Intermediate for January was at $72.21 a barrel at 7:35 a.m. in New York. Brent for February settlement gained 0.4% to $75.75 a barrel on the ICE Futures Europe exchange. Brent’s prompt timespread was 35 cents in backwardation, compared with $1.34 at the start of last month.

U.S. crude inventories fell by 3.1 million barrels last week, the API said. That would be the largest draw since September if confirmed by the Energy Information Administration. The EIA is expected to report stockpiles fell by 1.5 million barrels, according to the median estimate in a Bloomberg survey.

Over the past week, some traders have bet on the small chance that WTI’s discount to Brent will surge past $10 a barrel next year. The long-shot wager is a signal that some market participants believe the Biden administration could intervene in the market again to bring down prices following a pledge to sell crude inventories from strategic reserves.

Other oil-market news:
The possibility that Saudi Arabia’s energy minister will deliver another surprise to global oil markets is shoring up prices in the final weeks of the year. U.S. oil drillers will need half a decade to resume pre-pandemic production levels, according to Scott Sheffield, chief executive officer of Pioneer Natural Resources Co. The International Energy Forum called on companies to raise investment in oil and natural-gas production to $523 billion a year by the end of this decade to prevent a surge in energy prices and economic unrest.

Other oil-market news:

The possibility that Saudi Arabia’s energy minister will deliver another surprise to global oil markets is shoring up prices in the final weeks of the year.
U.S. oil drillers will need half a decade to resume pre-pandemic production levels, according to Scott Sheffield, chief executive officer of Pioneer Natural Resources Co.
The International Energy Forum called on companies to raise investment in oil and natural-gas production to $523 billion a year by the end of this decade to prevent a surge in energy prices and economic unrest.