Oil Rises With U.S. Stimulus Talks Boosting Demand Outlook

(Bloomberg) -- Oil edged higher in tandem with a broader market rally as breakthroughs on U.S. stimulus talks combined with the Covid-19 vaccine rollout signaled a revival in demand soon to come.

Futures rose as much as 1.6% in New York on Tuesday. Moderna Inc.’s vaccine was deemed safe by U.S. regulators, clearing the way for a second shot to quickly gain emergency authorization. Meanwhile, a bipartisan group of lawmakers released proposed Covid-relief legislation that may help a months-long impasse.

“There’s a lot of bullish sentiment that’s seeped its way into the oil market with the rollout of the vaccine,” said John Kilduff, a partner at Again Capital LLC. “If we get a fiscal aid package out of Washington, that would bolster markets even more across the board.”

Still, gains were capped after the International Energy Agency trimmed its demand forecast for 2021 and said the crude oil glut left behind by the coronavirus pandemic will not likely clear until the end of next year.

Oil futures are trading near the highest level in nine months amid expectations that a widespread vaccine rollout will aid a demand recovery. But, the outlook remains shaky. The IEA’s demand projections follow OPEC’s decision to cut its projections for demand in the first quarter of 2021 as the group and its allies prepare to start returning some crude supply to the market from January.

It’s not just the U.S. and Europe that are seeing renewed measures that could impact fuel consumption. In Asia, Japan suspended its domestic travel incentive system for two weeks after infections rose, while new cases in South Korea jumped.

The nearest portion of the futures and swaps markets are highlighting the mixed outlook. Brent’s prompt time spread was on the verge of a flip back into contango, where near-dated contracts are cheaper than later ones. That compares with a bullish backwardation of as much as 18 cents last week. At the same time, the Middle East Dubai benchmark has been moving further into backwardation.

Meanwhile, analysts expect a decline in U.S. crude stockpiles last week, according to a Bloomberg survey. The industry-funded American Petroleum Institute will release its figures later Tuesday ahead of a U.S. government tally on Wednesday.

©2020 Bloomberg L.P.