Hopeful news about a COVID-19 vaccine gave oil prices a big boost this week, fuelled by expectations that post-pandemic life is perhaps not as distant as once feared.
But crude prices were fading again by Friday, highlighting the fact that the pandemic continues to be a major force in an oil market that still faces a lot of uncertainty.
COVID-19 has weighed heavily on fuel demand, crude prices and the industry thanks in no small part to a collapse in things like airline travel and daily commuter traffic.
News of a promising vaccine candidate at U.S. drugmaker Pfizer “was cause for some optimism that we could get on the other side of this post-pandemic world and [oil] demand would eventually fully recover,” said analyst Kevin Birn, an expert on North American crude markets with IHS Markit in Calgary.
“But the reality is, we still got two to three or even more months to deal with the actual virus’s impact on demand. And, right now, the virus is growing.”
Oil prices jumped following unexpected news on Monday that Pfizer had a vaccine breakthrough that appeared 90 per cent effective.
The North American benchmark price for a barrel of oil had closed on Friday, Nov. 6, at $37.14 US — but then climbed as high as $43.06 US by Wednesday in midday trading.
While Pfizer’s announcement helped crude prices, the share price of a number of Canadian oil and gas companies — which have cut spending plans and staff to navigate the downturn — also got a lift.
Despite the market’s initial exuberance, however, oil prices ebbed toward the end of the week, closing down 99 cents at $40.13 US per barrel on Friday, amid growing concern about the direction of the pandemic and the impact of more lockdowns in Europe and the United States.
The slip also followed a suggestion from the International Energy Agency (IEA) that global oil demand is unlikely to get a significant boost from the rollout of vaccines until well into 2021.
“It is far too early to know how and when vaccines will allow normal life to resume,” the Paris-based IEA said in its monthly report on Thursday.
“For now, our forecasts do not anticipate a significant impact in the first half of 2021.”
It cited a resurgence of COVID-19 infections in Europe and the U.S. — and renewed lockdown measures — for revising down its outlook for global oil demand for 2020.
“This euphoria [about the vaccine] received a bit of a reality check,” said Judith Dwarkin, chief economist at Enverus, an energy data analytics firm.
“There’s a real risk that we could see the level of demand retreat a bit in the very near term because of the soaring COVID-19 caseloads and renewed lockdowns and containment measures that are being put into place in a number of countries.”
OPEC also said global oil demand will rebound more slowly in 2021 than previously thought because of rising coronavirus cases, though it added “an effective and widely distributable vaccine” could support the economy as early as the first half of the year.
Earlier in the week, Goldman Sachs analyst Damien Courvalin said in a note to clients he expects the winter COVID-19 wave “to delay but not derail the oil market rebalancing.”
In the more immediate term, “the market will remain caught between vaccine, lockdown and U.S. election headlines, leaving for further price volatility and downside risks,” he wrote Monday.
Indeed, the oil sector’s journey through the pandemic faces any number of uncertainties, including what OPEC members do with oil production and whether the U.S. will ease sanctions on Iran, allowing more crude back onto fragile oil markets.
Even when companies emerge from the pandemic, they’re likely to face intensifying scrutiny from governments, environmentalists and investors over climate change.
Rory Johnston, managing director and market economist at Price Street in Toronto, said while the sector awaits a sustained rebound in prices, he expects to see more consolidation in the sector, particularly among some of the sector’s smaller players.
“In moments like this, this is when we historically see consolidation,” he said.