Prices settle lower as coronavirus surge trumps vaccine advances

Oil futures settled lower Nov. 13, with a continued rise in coronavirus cases in Europe and the US offsetting promising vaccine news earlier in the week.

NYMEX December crude settled at $40.13/b, down 99 cents, down 16 cents from Nov. 9, when crude rallied $3.15 on news Pfizer had developed an effective COVID-19 vaccine.

ICE January Brent settled at $42.78/b, down 75 cents.

In refined products, NYMEX December RBOB settled at $1.1254/gal, down 3.17 cents, while December ULSD settled at $1.2042/gal, down 2.91 cents.

NYMEX crude "has been through worse this year and will likely remain trapped around the $40 level until Europe is on the other side of their current COVID wave," said OANDA analyst Edward Moya in a report. "The demand outlook is terrible for the next few months, but very optimistic for the second half 2021."

The UK recorded 33,470 new daily coronavirus cases Nov. 12, the highest daily number reported in the country, according to government figures.

Other European countries also saw coronavirus cases increasing and will possibly call for stricter lockdowns, which could put further downside pressure on oil demand in the following months. Greece saw a record-high daily increase in COVID-19 cases Nov. 12, at 3,316. The US was showing a similar pattern, with a record-high 163,405 cases the same day.

"Facing the possibility that hospitals could become overwhelmed by a surge in coronavirus infections, governments in Western Europe have tightened restrictions on economic activity and reimposed lockdowns in some cases," said S&P Global Platts Analytics analyst Nabuo Tarui. "For now, measures in place are not as stringent as those in spring, which severely restricted people's mobility and businesses' ability to operate.

"It is probably fair to say that European governments are loathe to see a repeat of earlier unprecedented GDP contractions," Tarui said. "This time, to minimize economic damages, people are granted some freedom of movement; specific industries (particularly bars and restaurants) are targeted; and schools are kept open. But restrictions will likely have to be tightened further if situations at hospitals deteriorate."

US HOLIDAY TRAVEL EXPECTED LOWER

The US Thanksgiving holiday weekend is approaching, which typically sees a boost in travel. This year, however, travel demand will likely fall at least 10%, according to the American Automobile Association.

"With health and government officials stressing that staying home is the best way to protect yourself and others from getting sick, AAA anticipates at least a 10% drop in travel--the largest one-year decrease since the Great Recession in 2008," the organization said Nov. 13.

"Those who decide to travel are likely to drive shorter distances and reduce the number of days they are away, making road trips the dominant form of travel this Thanksgiving," AAA said. "Travel by automobile is projected to fall 4.3% to 47.8 million travelers and account for 95% of all holiday travel."

Thanksgiving air travel will likely drop by almost half from last year, falling to 2.4 million travelers, AAA said.

"This would be the largest one-year decrease on record," AAA said. "Travel by other modes, including buses, trains and cruises, is expected to decline 76% to 353,000 travelers, as cruise ships remain docked and more travelers opt for car trips instead of taking buses or trains."

A further reduction in gasoline, jet fuel and diesel demand could push refiners to cut runs to bolster margins.

The January RBOB crack spread against ICE Brent ended at around $4.50/b Nov. 13, down from $6.12/b on Nov. 9.

Nearly 10% of US refining capacity is already offline due to low demand, and many refiners think it is still not enough to support margins.

"The vaccine news are great for sure, but I see no clear way of how demand could improve in the near term, certainly not within the following 2-3 months," said Geordie Wilkes, Sucden UK's head of research.