Oil prices close higher on promise of Covid-19 vaccine

Less than 48 hours after US President-elect Joseph Biden celebrated his victory, he and the nation woke up to a mixed bag of news.

The US surpassed 10 million confirmed Covid-19 cases today. The number of global cases is approaching 51 million, with more than 1.2 million deaths recorded globally, with more than 237,000 of those deaths occurring in the US, according to data from Johns Hopkins University.

On a brighter note, pharmaceutical giant Pfizer, and its German biotech partner BioNTech announced that their Covid-19 vaccine trial was effective in preventing coronavirus infections in 90% of previously uninfected people.

The news boosted blue-chip stocks higher, with the Dow Jones Industrial Average ending the day up 834 points, at 29,157.

West Texas Intermediate crude prices surged to more than 8%, its biggest daily gain since May, before settling at 7.27%, or $39.84 per barrel, according to Bloomberg.

Brent crude settled at $42.09 a barrel, up $2.64 or 6.69%, according to Bloomberg.

"Oil prices are reacting violently positive as the market is pricing in the possibility of a quicker roll-out of a global vaccine, exacerbated by a large amount of short positions which needs to be covered when prices start soaring," said Bjornar Tonhaugen, head of oil markets for Rystad Energy.

The potential vaccine is viewed as a small victory in the battle against the virus that has triggered lockdowns around the world for a second time in 2020.

"In the eyes of traders, a vaccine will help ensure no future lockdowns are needed and will bring people back to the streets, allowing road and air transport to recover," he said.

"Essentially a vaccine is a bullish sign against Covid-19 pessimism. The pandemic is what keeps oil demand from recovering and this is clearly positive news for the market."

While the vaccine's progress is considered a breakthrough, President-elect Biden urged the public to stay the course and continue following appropriate Covid-19 protocols.

"It is also important to understand that the end of the battle against COVID-19 is still months away. This news follows a previously announced timeline by industry officials that forecast vaccine approval by late November," said Biden.

“Even if that is achieved, and some Americans are vaccinated later this year, it will be many more months before there is widespread vaccination in this country."

Regarding oil prices, it echoes an observation made by Tonhaugen, with prices probably reversing as the market realises the "near-term impacts on oil demand will be non-existent, as a vaccine is not exactly coming tomorrow."

Pfizer noted in its release that it is submitting the necessary documentation specified by the US Federal Drug Administration for potential emergency use authorisation.

The companies expect to produce globally up to 50 million vaccine doses in 2020 and up to 1.3 billion doses in 2021.