Oil was steady after its highest close in almost 10 months as U.S. lawmakers worked toward finalizing a stimulus deal that may boost near-term demand ahead of a broad roll-out of the Covid-19 vaccine.
Futures in New York were near $48, headed for a seventh weekly gain. Oil is the “vaccine trade” at the moment, according to Goldman Sachs Group Inc., and prices have gained further support as the U.S. works through the final points of a stimulus package worth almost $900 billion.
There are signs that some of the recent strength in the physical market is starting to ease, however. Brent’s nearby timespread slumped back into a bearish contango on Thursday, a market structure where nearby futures are trading at a discount to later ones. Combined with easing premiums for real-world barrels that’s an indication that the market is coming to a pause.
“Bullish momentum is taking a breather,” said Stephen Brennock, an analyst at PVM Oil Associates Ltd. “Prices should continue to find support form the prospect of a Covid relief bill and accelerating vaccine roll-outs.”
The spreading virus and lockdowns are weighing on demand, but the hit is much smaller than earlier in the year and is likely only a speed bump to rebalancing the market, according to a Goldman note. This will leave the oil market rangebound and choppy in coming weeks as vaccine enthusiasm is followed by headlines on tighten pandemic restrictions, the bank said.
Recent price gains may be a bit premature, with the demand recovery remaining bumpy, according to a note from UBS Group AG. A material increase in oil demand is unlikely before the second quarter of 2021, the bank said.
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