- Oil markets soared on Monday after Pfizer announced positive results from its coronavirus-vaccine study.
- But experts said the rally would be short-lived, as the news does little to change a bleak outlook for oil demand.
- In recent days, top Wall Street banks revised down their estimates for oil prices on news of lockdowns and surging COVID-19 cases.
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Oil markets surged on Monday after Pfizer announced positive results from its coronavirus-vaccine study.
But top analysts say those gains are only temporary, as demand for gasoline and jet fuel — a major determinant of prices — is largely unchanged, at least in the near term.
“The violent price reaction will probably reverse soon as the market realizes the near-term impacts on oil demand will be nonexistent,” Bjornar Tonhaugen, the head of oil markets at the energy-research firm Rystad Energy, said. “A vaccine is not exactly coming tomorrow.”
In the weeks before Pfizer’s announcement, crude prices were struggling to gain ground because of uncertainty related to the US election and additional lockdowns in Europe, which will reduce demand, according to Richard Chatterton, an oil analyst at the data firm BloombergNEF.
On Monday, oil traders ditched short positions and bought into the market, Chatterton said, sending the value of Brent crude, the international benchmark, soaring to more than $43 a barrel.
‘Cheap oil is here to stay’
Preliminary results from Pfizer’s vaccine, which have yet to published in a peer-reviewed journal, suggest it’s effective, but it will still be months before it becomes widely available to the public.
Until then, the pandemic could continue to ignite lockdowns and slow the recovery of demand.
“The reality is that the timing of a global rollout of any vaccine is further down the road than some believe, so it will take a long time to apply it to the global population,” Rystad said.
What does that mean for oil prices?
“Cheap oil is here to stay,” said Tom Kloza, an analyst at Oil Price Information Service, a division of the research group IHS Markit.
There’s also still a major glut of oil in the US and China, he said.
Both US crude and Brent could dip below $40 a barrel again in winter, Kloza said. It won’t be until late next year that prices could near pre-pandemic levels, he added, citing estimates from analysts.
In recent days, major banks including Citi and JPMorgan revised down their price estimates for crude.
Citi, for example, now expects Brent to average about $44 a barrel in the last three months of the year, down from a previous estimate of $48, according to a note published Monday before markets opened. The bank mentioned “a stronger-than-expected resurgence in COVID-19 cases” in justifying the revision.
The vaccine news is bullish for prices in the long term
To be clear, Pfizer’s announcement is good for oil prices in the long term, Rystad said. And while Chatterton expects prices to fall back down as the market absorbs the news, he said today’s market surge could be part of a sustained rally — “as expectations on the pace and depth of the recovery are recalibrated.”
“Major crude benchmarks are merely back at the same levels as mid-October, so if the vaccine hails a genuine improvement in the demand outlook, we should expect to see oil prices breakout towards” $50 a barrel by the end of the year, he said.
Plus, there could be another bright spot for oil prices in the days ahead: Moderna, a biotech firm working on another vaccine, is expected to announce interim results of its study this month. Should those results be positive as well, oil markets might see another jump.
Read More: Oil prices are likely to fall despite Pfizer coronavirus-vaccine news