Oil rounds off sixth week of gains as countries begin distributing vaccines

Optimism returns to the market after oil rose above $50 a barrel last week

An oil pump jack in North Dakota. Russia is pushing for a proposal to add 500,000 bpd of supply back in the markets. AFP

Oil rounded off a sixth consecutive week of gains as the distribution of coronavirus vaccines bolstered confidence in an economic rebound from the virus-induced slowdown.

International benchmark Brent, under which two thirds of the world’s oil is traded, registered a weekly gain of 1.5 per cent.

It settled 0.56 per cent lower at $49.97 a barrel amid new Covid-19 restrictions on businesses in New York.

West Texas Intermediate, which tracks US crude, rounded off the week 1 per cent higher but traded 0.45 per cent lower at $46.57 a barrel on Friday.

“The recovery from the pandemic will accelerate once a vaccine is widely available, further supported by ongoing fiscal and monetary stimulus from governments around the world,” Reuters reported, quoting ANZ Research.

Last week, Brent surged past $50 for the first time since March on positive news about the distribution of the vaccine.

The US gave the final approval for its first Covid-19 vaccine on Friday, marking what could be the beginning of the end for an outbreak that had killed more than 303,000 people in the country as of Saturday.

Shots for health workers and nursing home residents are expected to be given in the coming days after the Food and Drug Administration authorised the emergency distribution of a vaccine developed by Pfizer and its German partner BioNTech.

The UK made the vaccine available last Tuesday.

“The broad market rally is expected to continue next year, with commodities set for a positive year amid an improving economic backdrop,” ANZ Research said.

Fitch Ratings last week raised its global economic growth outlook due to positive news on the vaccines.

The credit rating agency expects the world economy to grow by 5.3 per cent next year, up from an earlier forecast of 5.2 per cent, with a strong growth forecast in the second half of the year.

“Just as the global economy rebounded quickly – albeit partially – from the spring lockdowns, we expect the current weakness to give way to much stronger growth when existing lockdowns end and a host of vaccines become available at mass scale in the first half of 2021,” said Ehsan Khoman, director and head of Mena research and strategy at MUFG Bank.

He said Brent and WTI would end the year at $48 per barrel and $45 a barrel, respectively. Next year, Brent is expected to average $57 a barrel while the price of WTI is expected to be $53 a barrel.

“Such levels are high enough to bring back some non-Opec+ growth, notably US supply, but not adequate enough to tilt the market back to oversupply,” said Mr Khoman.

Opec+, which is led by Russia and Saudi Arabia, agreed to increase production gradually for three months from January amid expectations of a growth in demand as movement restrictions are eased.

The group will bring 2 million barrels per day to the market, in increments of 500,000 bpd, from next month.

Opec+ said earlier this month that it will draw back 7.2 million bpd, reversing the 7.7 million bpd of output curbs in place since August.

“The very fact that prices broke the $50 ceiling... is positive for the market,” Rystad energy analyst Paola Rodriguez-Masiu said.

“Looking at the weekly performance and at the overall trend, oil is in a much better position than earlier in the year and optimism has returned for the future.”