By Geoffrey Smith
Investing.com -- Crude oil prices extended their gains on Tuesday as the market continued to reassess the outlook for fuel demand in the wake of an announcement on Monday that encouraged hopes for an early end to the Covid-19 pandemic.
By 9:15 AM ET (1415 GMT), U.S. Crude futures were up 1.5% at $40.88 a barrel, while Brent futures, the international benchmark, were up 1.5% at $43.03 a barrel.
Both, however, were off intraday highs after Brent, notably, failed again to break a familiar resistance level at around $43.55, according to analysts at Saxo Bank.
Prices had soared on Monday after Pfizer (NYSE:PFE) announced its experimental Covid-19 drug had proved over 90% effective in preventing the coronavirus, citing results from a late-stage trial. Gains moderated as the market absorbed the fact that the vaccine’s safety and longevity still need to be proven.
Newswires quoted Russell Hardy, CEO of leading oil trader Vitol, as telling a conference Tuesday that he now sees oil prices heading back to $50 a barrel, as a recovery in demand leads to a faster drawdown in global inventories. Even so, he said there may be some “difficult months” before then.
Saxo analysts acknowledged that the Pfizer news was a major boost for oil, but noted that “with Covid-19 cases still surging, not least in the U.S. the short-term outlook remains challenging.”
The U.S. recorded its fourth straight day of over 100,000 new infections and surges from California to the Midwest and the Mexican border strongly suggest that the pandemic has veered out of control while the nation has been distracted by the election campaign.
The level at which inventories are being whittled down from their abnormally high levels remains the key variable in the market, with the OPEC+ bloc deliberately producing less than current demand to put pressure on stockpiles. The American Petroleum Institute will release its weekly estimate of U.S. stockpiles at 4:30 PM ET, as usual.
Elsewhere, Bloomberg reported that Chinese inventories had fallen substantially in recent weeks as the domestic economy recovers. That has led to the government increasing private refineries’ import quotas for next year, which will be a net support to global demand. Beijing has also put in place minimum prices for refined products to guarantee refinery margins, at a time when refining margins around the world are under acute pressure. Royal Dutch Shell (LON:RDSa) said on Monday it would shut its Louisiana refinery after having failed to find a buyer.
Elsewhere later, the U.S. Energy Information Administration will release its regular Short-Term Energy Outlook, the first of three major surveys on the oil market this week. Reports from OPEC and the International Energy Agency will follow on Wednesday and Thursday, respectively.