Oil futures climbed on Friday, with prices scoring a third weekly gain in a row, fueled by optimism over COVID-19 vaccines even as the number of new cases continues to rise, posing a renewed threat to energy demand.
“Oil has been pulled and tugged by conflicting forces this week,” Lukman Otunuga, senior research analyst at FXTM, told MarketWatch.
The Organization of the Petroleum Exporting Countries and their allies, together known as OPEC+, have hinted that they “could extend current production cuts for another three months and vaccine optimism may inject oil bulls with inspiration,” he said. However, “bears remain supported by demand-related concerns.”
West Texas Intermediate crude for December delivery CLZ20, +1.03%, which expired at the end of the session, settled at $42.15 a barrel on the New York Mercantile Exchange, up 41 cents, or 1%. Based on the front month, prices saw a 5% weekly gain, according to Dow Jones Market Data. The new front month January WTI crude contract CLF21, +1.36% added 52 cents, or 1.2%, at $42.42.
January Brent crude BRN00, +0.37%, the global benchmark, added 76 cents, or 1.7%, at $44.96 a barrel on ICE Futures Europe, with the front-month contract ending 5.1% higher for the week.
Otunuga attributed the gains for the week to the weaker dollar, as well as vaccine-fueled optimism. The ICE U.S. Dollar Index DXY, +0.11% traded around 0.4% lower for the week.
Oil is likely to remain influenced by COVID-19 vaccine developments and “concerns about more restrictions from a global surge in infections,” he said. “The medium-term outlook for oil may be influenced by the pending OPEC+ meeting on November 30.”
Overall, the physical market for crude has proven resilient, with Atlantic Basin crudes “clearing at an easier pace” despite rising European lockdowns, a surge in U.S. COVID cases that is expected to weigh on activity, a ramp-up in Libyan oil output and speculation around whether the Organization of the Petroleum Exporting Countries and its allies will extend current output curbs, noted Michael Tran, analyst at RBC Capital Markets, in a note.
The barrels are clearing to Asia, he said, “where demand has kicked into high gear,” with China a center for stability and India “fortifying” its domestic recovery.
“While investors are hesitant to short the oil market in the face of a vaccine, the physical market is showing signs of modest improvement, suggesting that crude prices are asymmetrically skewed to the upside,” he said.
Back on Nymex, gasoline and heating oil ended the week with gains along with oil, but natural-gas futures were set for a hefty weekly loss.
December natural gas NGZ20, +2.81% added 2.2% to $2.65 per million British thermal units, though finished 11.5% lower for the week.
Natural-gas prices have “tumbled on persistently warm weather which has cut heating demand, combined with production levels which continue to surprise to the upside,” said Christin Redmond, commodity analyst at Schneider Electric, in a note. “These factors have resulted in a return to storage injections over the past two weeks, which is unusual for this time of year.”