Oil rounds off fourth week of gains amid vaccine-fuelled optimism

UBS sees a "moderate production response" from US shale in the second half of the year and a "stronger" one in 2022. Reuters

Oil rounded a fourth week of gains on the back of positive news about Covid-19 vaccines and ahead of a meeting of Opec+ producers.

Brent, the international benchmark, under which two-thirds of the world’s oil is traded, registered a weekly gain of 7.2 per cent. The benchmark settled 0.8 per cent higher at $48.18 per barrel yesterday.

West Texas Intermediate, which tracks US crude grades, rounded off the week 8 per cent higher. The benchmark, however, pared its gains and settled 0.39 per cent lower at $45.53 per barrel on Friday.

Opec is set to meet for its annual meeting on December 1, alongside non-member producers led by Russia. The group is set to extend the current level of curbs for another three months.

Opec+ cut a record 9.7 million barrels per day between May and July to balance crude prices after the coronavirus-induced movement restrictions led to a plunge in demand. The alliance has since tapered restrictions and is currently drawing back 7.7m bpd.

The group was set to further taper cuts at the start of the new year. However, analysts say that Opec+ is considering maintaining the current level of cuts until the end of the first quarter of 2021 after lockdowns in some countries following a second wave of infections hit energy demand.

"If Opec+ decides to extend its phase two cuts into 2021, then the crude overhang should disappear by July 2021. But if not, this will take through late 2021,” Energy Aspects said in a note on Thursday.

"We believe there is still broad consensus within Opec+ (including Russia) to extend phase two of its cuts into Q1 2021,” the report said.

Oil has also gained significantly from reports of the efficacy of at least three vaccine trials.

The Pfizer-BioNTech collaboration has proved to be more than 90 per cent effective in clinical trials, while  vaccine candidates from pharma companies Moderna and AstraZeneca have also proved efficacy at 90 per cent and 70 per cent.

Demand for crude is also picking up in some parts of the world.

"Global demand seems to have recovered beyond 95 per cent of pre-crisis levels, with Asia especially sticking out in terms of positive dynamics more recently,” Norbert Rücker, head economics and next generation research at Julius Baer, said.

"The upcoming petro-nations’ meeting should bring an extension of the supply cuts, in order to not threaten the oil-market recovery and to make room for Libya’s export boost,” he added.