Oil prices soared 9% on Monday as positive vaccine data released by Pfizer increases the chance that the economy will rebound sharply next year. Pfizer said on Monday that its vaccine developed with BioNTech has been 90% effective, although the full data set isn’t in and the information hasn’t been peer-reviewed. Major indexes were surging too, with S&P 500 futures up 4.3%. Brent crude futures, the international benchmark, rose 8.7% to $42.88. West Texas Intermediate futures rose 9.7% to $40.73. Both measures of oil prices had fallen below $40 last month as cases of Covid-19 have surged again in the U.S. and Europe.
Oil stocks were rising too, with ExxonMobil (XOM) trading 11% higher in premarket action. Oil producers were surging too, with Diamondback Energy (FANG) up 15%. Energy stocks have been so depressed this year—with most down 50% or more—that they’re likely to be among the biggest beneficiaries of a vaccine. Refiner Valero (VLO) was up 13%. Positive news about Covid would probably show up in the earnings of refiners before other energy stocks, because they’ll likely benefit first. Demand for the fuels they process has to rise before oil producers can restart production. Refineries are still operating at just 75% of their capacity, according to U.S. government data.
Oil stocks have slumped in recent months because Covid-19 has dampened demand. With cases rising in so many areas, air travel remains depressed and demand for jet fuel has stayed low, with refiners supplying 45% less fuel than they did at this time last year. In 2019, the world produced and consumed about 100 million barrels of oil per day. Consumption fell to 85 million barrels per day on average in the second quarter, according to the U.S. Energy Information Administration. It’s climbed above 90 million barrels per day again, and even with a vaccine, it’s no lock that demand will exceed 100 million barrels on a regular basis.
The question now is whether oil producers will maintain their discipline and continue to hold back on production even as the outlook gets brighter. If too many restore the production they’ve reduced, the market will continue to be oversupplied, and prices could stay low.
“Whether the vaccine will come soon enough to warrant pushing ahead with production increases in January is another thing,” wrote Craig Erlam, analyst at currency broker OANDA. “Producers have plenty of cause for playing it safe but if vaccine news between now and year-end returns prices back to more sustainable levels regardless, they may find there isn’t as much desire to postpone increases as there was a week or two ago.”
Article source: Penta