Oil rally fades as COVID spikes crush hopes for vaccine quick fix

Oil rally fades as COVID spikes crush hopes for vaccine quick fix

Oil prices were little changed on Tuesday as spiralling COVID-19 infections and the return of lockdowns and restrictions in Europe and the United States eclipsed Monday’s vaccine-fuelled rally in crude prices.

Crude slipped to below $44 a barrel with global benchmark Brent for January delivery losing seven cents to settle at $43.75 a barrel. US West Texas Intermediate for December delivery gained nine cents to settle at $41.43 a barrel.

The Organization of the Petroleum Exporting Countries (OPEC) and its allies led by Russia held a ministerial committee meeting on Tuesday but made no formal recommendation on changing quotas for next year.

The grouping, known as OPEC+, agreed to record oil cuts earlier this year as the pandemic gutted global crude demand, causing oil prices to crash in March and April.

Saudi Arabia, OPEC’s kingpin and the world’s top exporter of oil, urged other oil-producing nations to consider delaying a boost to output by two million barrels per day (bpd), or 2 percent of global demand, in January.

OPEC+ is currently in agreement to cut 7.7 million bpd until January and then taper the reduction to 5.7 million bpd. Its ministerial meeting is scheduled for November 30.

“Keeping the status quo would mean a very rocky start to 2021,” Louise Dickson, Analyst at Rystad Energy, told Al Jazeera.

Dickson added that extending existing cuts of 7.7 million bpd for a further three months would balance the market but do very little to lift prices. And while a six-month extension is likely to support prices, there’s a sting in a tail.

“That’s a double-edged sword because if prices improve, then other players will bring back supply,” said Dickson.

Oil-producing nations are in the throes of a budget squeeze, including Saudi Arabia, which the IMF reckoned needs crude to fetch north of $78 a barrel to balance its budget this year and just shy of $68 a barrel next year.

“We as a group do not want to give the markets any excuse to react negatively,” Saudi Energy Minister Prince Abdulaziz bin Salman reportedly said at the start of Tuesday’s OPEC+ meeting.

Russia has been slow to say whether it will agree to extend cuts. While Moscow has indicated that it will oblige to its commitment under the current OPEC+ deal, it has also said that the market has reached stability.

Oil prices hit a 10-week high on Monday after Moderna said preliminary trial data of its COVID-19 vaccine showed it to be 94.5 percent effective. It was the second dose of positive vaccine news in as many weeks, following promising trial results from Pfizer and BioNTech’s COVID-19 vaccine.

But analysts warned that good vaccine news today does not mean demand recovery tomorrow, next week or even next month.

A street vendor wearing a protective face mask blows bubbles out of a toy across the street from the CityMD Jamaica Urgent Care in the Queens borough of New York, US [File: Shannon Stapleton/Reuters]“We still got a way to go and the Saudis recognise that,” Samantha Gross, energy and climate fellow at the Brookings Institution, told Al Jazeera.

“The vaccine news is good but we’re seeing a resurgence in the [United] States and in Europe and that says to us that demand is not coming back quickly. Prices may bounce a little on vaccine news but they will go back down when people realise that it will not fix the problem immediately.”