OIL FUTURES: Oil climbs on COVID-19 vaccine optimism, but demand concerns persist

Crude futures settled higher Dec. 15 as progress on US approval of a second COVID-19 vaccine overshadowed newly bearish demand projections.

NYMEX January WTI settled 63 cents higher at $47.62/b, and ICE February Brent climbed 47 cents to settle at $50.76/b.

The US Food and Drug Administration on Dec. 15 endorsed the emergency use of the Moderna COVID-19 vaccine, paving the way for formal approval later this week. The approval comes on the heels of a Dec. 11 decision to authorize the Pfizer-BioNTech vaccine that kick-started a nationwide vaccination program this week.

"Oil prices are in wait-and-see mode as virus restrictions rise and vaccine rollouts begin," OANDA senior market analyst Ed Moya said in a note. "Wall Street has firmly priced in the successful launch of both Pfizer and Moderna's COVID vaccines, so any supply disruptions or problems with execution will weigh heavily on the short-term outlook."

NYMEX January RBOB settled 77 points higher at $1.3266/gal, and January ULSD was up 1 cent at $1.4644/gal.

IEA cuts oil demand outlook

The International Energy Agency on Dec. 15 trimmed its oil demand estimates for 2020 and 2021 despite a recent rally in crude futures, as the looming uncertainty over the efficacy, availability and deployment of coronavirus vaccines will keep oil demand weak in the short term, it said.

The IEA said its latest monthly oil market report it "will be several months before we reach a critical mass of vaccinated, economically active people and thus see an impact on oil demand."

But the Paris-based agency said stronger Asian demand and persistent and effective OPEC+ supply management had aided the recent recovery in oil prices.

The IEA now expects global crude oil stocks to return to pre-pandemic levels by December 2021, "as the 1.7 million b/d build in 2020 is followed by 1.8 million b/d draw in 2021."

On Dec. 14, OPEC lowered its estimate of global oil demand by 1 million b/d for the first quarter of 2021 and by 620,000 b/d for Q2. Additionally, forecast demand for 2021 was cut by 360,000 b/d to 95.89 million b/d.

Lockdowns loom

The newly bearish demand outlook comes as European countries tighten restrictions on citizens in a bid to constrain the spread of the virus.

At midnight on Dec. 16, London and the surround regions move into tougher restrictions, affecting more than 10 million people, with pubs, cafes and restaurants forced to close.

The Netherlands, Czech Republic and Germany have also announced in recent days that similar measures will be introduced.

In the US, New York Governor Andrew Cuomo and New York City Mayor Bill de Blasio warned Dec. 14 that the current pandemic trajectory could force a return to widespread shutdown of non-essential business.

The front-month ICE New York Harbor RBOB crack against Brent was holding at around $5.12/b in afternoon trading Dec. 15, down 10 cents from Dec. 14.

As near-term demand outlooks dim, the US Congress appears closer on passing a bipartisan COVID-19 stimulus bill. Lawmakers have split the $908 billion package into two parts, sequestering the portions of the bill with more partisan support to pass those with bipartisan agreement including unemployment benefits and funding for vaccine distribution.