Crude oil futures retreat after overnight rally on vaccine news, US stock draw

Singapore — 0240 GMT: Crude oil futures slipped during mid-morning trade in Asia Dec. 3 after rallying overnight following fresh reports of COVID-19 vaccine approvals in the UK, crude oil inventory draw in the US and as signs of progress on OPEC+ talks emerge.

At 10:40 am Singapore time (0240 GMT), ICE Brent February contract was 13 cents/b (0.27%) lower from the Dec. 2 settle at $48.12/b, while the January NYMEX light sweet crude contract was down 15 cents/b (0.33%) at $45.13/b.

The markers retreated slightly during early Asian trade Dec. 3 after rising 1.75% and 1.64% to settle at $48.25/b and $45.28/b, respectively, on Dec.2 as outlooks improved amid COVID-19 vaccine optimism and an unexpected US crude inventory draw.

In addition, analysts noted that emerging signs point to the fact the OPEC+ alliance has made progress on a deal. The coalition is scheduled to meet Dec. 3, two days later than originally scheduled.

"OPEC's major producers, Saudi Arabia, Russia and the UAE are said to have had constructive talks. Russia is also said to have settled its position after talks with its own oil companies, with a gradual tapering of production cuts within the first quarter of 2021," ANZ analysts said in a Dec. 3 report.

Demand-side factors, however, remain key for the oil markets, with crude stocks providing cues on current end-user demand, analysts said.

Running contrary to a Dec. 1 report by the American Petroleum Institute, the US Energy Information Administration data on Dec. 2 showed a 680,000-barrel decline in US commercial crude oil inventories in the week ended Nov. 27 to 488.04 million barrels.

The API report had indicated a 4.15 million-barrel US crude build for the same week. Analysts surveyed by S&P Global Platts on Nov. 30 had expected a 1.7 million-barrel crude draw.

"The current level of demand via global inventory status and the shape of the curve will provide the immediate tell for traders," Axi chief global market strategist Stephen Innes said in a note Dec. 3.

"Anything that will bridge the gap to the time when the vaccine effect, while working its magic through the real economy, while simultaneously OPEC+ to present a unified front should work for oil traders," Innes said.

Reports indicated late Dec. 2 that the UK had approved the Pfizer-BioNTech COVID-19 vaccine and would begin administering it as soon as next week.

In addition, Pfizer-BioNTech and Moderna are both seeking permission from the US Food and Drug Administration to administer the vaccine in the US. The FDA is expected to hold a meeting on Dec. 10 to decide on the approval of the vaccine.