Watch: Oil rises on Pfizer’s vaccine optimism
Oil prices held steady about $40 (£30) a barrel on Tuesday as markets continue to rally on the COVID-19 vaccine breakthrough news.
Oil prices gained the most since May on Monday following news that a vaccine developed by Pfizer (PFE) and BioNTech gave coronavirus sufferers a 90% success rate in preventing COVID-19 in a trial of over 43,000 participants. The UK is expected to get 10 million doses by the end of the year, with a further 30 million doses already ordered.
Talking about the oil price gains on Monday and Tuesday, Bjarne Schieldrop, chief commodities analyst at SEB, said they were “the writing on the wall for everyone to see: we’ll be able to control the virus. The solution is not here yet but it is just a matter of time. This will embolden OPEC+ and the group will now confidently offer to cut as needed in the bridging period until the solution actually arrives some time in H1 2021.”
Despite the vaccine breakthrough, oil prices continue to face downward pressures as governments struggle in dealing with rising cases.
In Europe, additional COVID-19 restrictions have been announced in Hungary, which will close restaurants (except takeaways) while secondary schools implement distance learning.
France, the UK, Spain and Poland are also under the strictest lockdowns in Europe, according to the Oxford stringency index that assesses indicators such as school and workplace closures, as well as travel bans.
“Right here and now the oil market is still in trouble as lockdowns in Europe and eventually also in the US will unavoidably erode oil product demand, said Schieldrop. “But OPEC+ will now feel confident that a solution is actually on the horizon which will cure the oil markets current demand problem. It is not a pie in the sky, it is real and the solution is on its way. OPEC+ can now keep on cutting without fear of being trapped with deep cuts where the only way out of the cuts would be to crash the market.
Schieldrop added that oil demand will rebound strongly back to pre-COVID-19 levels once vaccines start to be rolled out in the first half of 2021.
“OPEC+ will easily be able to reverse all, or most of their cuts when that happens,” said Schieldrop.
Watch: Global stocks soar on Pfizer Covid-19 vaccine news