Oil price skyrockets

Vaccine results boost hopes for pandemic recovery as oil inventories drop

Steve Sutherlin

Petroleum News

Oil prices blasted off to begin the week Monday Nov. 9, the same day Pfizer Inc. and its German partner BioNTech SE revealed positive results from late-stage COVID-19 vaccine trials.

Pfizer said the vaccine was found to be more than 90% effective against symptomatic infections, far above the U.S. Food and Drug Administration’s minimum effectiveness bar of 50%.

Alaska North Slope crude spiked 8.34% on the day, closing up $3.20 at $41.46 per barrel. West Texas Intermediate rose $3.15 to $40.29, while Brent rose to $42.40, up $2.95.

ANS led the pack higher again Nov. 10, up $1.55 to $43.01. WTI and Brent closed at $41.36 and $43.61, respectively.

Prices found additional support Nov. 10 when the American Petroleum Institute reported a draw on crude oil inventories of 5.147 million barrels for the week ending Nov. 6, dwarfing the draw of 913,000 barrels which analysts had predicted.

In the previous week, API reported a draw in oil inventories of 8.01 million barrels, versus a build of 890,000 barrels for the week predicted by analysts.

The bullish surge peaked Nov. 11, as Brent crossed above the $45 mark for the first time in 10 weeks, briefly touching $45.28 in early morning trading before sliding as the day wore on - closing up 17 cents to $43.78. WTI mirrored Brent, hitting $43.05 in the morning before settling to $41.45 at the New York Mercantile Exchange, a gain of 9 cents on the day.

Oil company stock prices responded positively to the vaccine news, up for the week - as a group - approximately 20%, according to a Forbes report Nov. 11.

Demand outlook uncertain

The Organization of Petroleum Exporting Countries cut its forecast for oil demand by 300,000 barrels per day this year, in its monthly oil market report released Nov. 11.

OPEC now expects global oil demand of just above 90.0 million bpd this year, down 9.8 million bpd versus 2019.

OPEC also cut its estimate for global oil demand in 2021, calling for demand to grow by 6.2 million bpd versus 2020 - a downward revision of 300,000 bpd compared to its October market report. At an estimated 96.3 million bpd, 2021 global demand would fall short of demand before the pandemic.

Jet fuel demand has been the weak link in the recovery of demand for transportation fuels, as air passenger numbers have recovered much more slowly than passenger car travel from the abrupt fall in travel earlier in 2020.

While the global daily flight count staged an impressive rebound during the April to August period, the growth appears to have stalled in recent months, according to data compiled by Flightradar24 Live Air Traffic.

Flightradar said the seven-day average of flight counts remains 22.5% under flight count averages for the same period last year.

According to total traveler throughput data compiled by the U.S. Transportation Security Administration, 973,020 travelers passed through TSA checkpoints Nov. 8, versus 2,356,349 on the corresponding day in 2019. That was the highest count so far in November, but shy of the 1,031,505 post-COVID traveler peak set on Oct. 18.

It is unclear to what extent the flatline in flight count data is a result of pandemic-induced travel restrictions and business curtailments, as opposed to normal seasonal reductions in travel demand.

In the United States, recent gasoline demand has been stronger than anticipated.

The API reported a 3.297 million-barrel drawdown of gasoline inventories for the week ending Nov. 6, versus a 263,000-barrel draw for the week which analysts had expected.

OPEC said that “sluggishness in transportation and industrial fuel demand is now assumed to last until mid-2021.”

The effect of OPEC’s less optimistic projections may have mixed results as far as oil price action is concerned. Oil traders are anticipating a summit scheduled for Nov. 30 and Dec. 1 between OPEC, Russia and other partners to discuss the state of oil markets and strategies to proceed with ongoing OPEC+ production cuts.

The demand recovery is proceeding more slowly than OPEC had anticipated, and the cartel has been adjusting its outlook down over the past five months, raising hopes that OPEC+ will extend its current 7.7 million-bpd cut into 2021, rather than dialing it down to 5.7 million bpd on Jan 1, as per its originally agreed schedule.

OPEC’s deliberations are further complicated by the return of Libyan oil production to the market.

Libya - home to Africa’s largest crude reserves - has raised its oil output to more than 1.1 million bpd, approaching the level it was producing at before the country’s civil war paralyzed its energy industry in January, Bloomberg reported Nov. 11.

Bloomberg said Libya ramped up production at its biggest oil fields including Sharara and Waha, quoting “a person familiar with the matter who asked not to be identified because the information isn’t public.”

Longer term, OPEC sees a brighter picture, with global primary energy demand rising by 25% in the period to 2045, according to OPEC Secretary General Mohammad Sanusi Barkindo.

The jump in demand will be fueled by two main factors: a massive doubling of GDP growth, combined with a 1.7 billion-person rise in global population by 2045, Barkindo said in remarks via video conference Nov. 4 to the 1st High-level Meeting of the OPEC-GECF (Gas Exporting Countries Forum) Energy Dialogue.

“In terms of renewable energy, we expect it to grow faster than any other source of energy, at an average of around 6.6% annually, but oil and gas will continue to make up the lion’s share of the energy mix throughout the forecast period,” Barkindo said. “Oil is forecast to supply nearly 28% of global needs, followed by gas at around 25%.”