Oil jumped by the most since May as news of a potential covid-19 vaccine breakthrough injected fresh hope that an end is in sight to the worst demand slump in decades.
Futures spiked as much as 11% in New York on Monday alongside a broader market rally after a vaccine being developed by Pfizer Inc. and BioNTech SE prevented more than 90% of infections in a study of tens of thousands of volunteers. While coronavirus cases continue to surge globally, the prospect of a widely distributed covid-19 vaccine could jump-start the fragile rebound in consumption.
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"Even if cases are cranking right now and people have to lock down for another month or so," said Michael Hiley, head of over-the-counter energy trading at New York-based LPS Futures, "the reaction is there is a light at the end of the tunnel."
Brent crude closed the day up 7.5% at $42.40 a barrel. West Texas Intermediate rose 8.5% to settle at $40.29 a barrel on the New York Mercantile Exchange
While a vaccine would be a big step for oil's demand recovery, the market remains in a precarious position after the pandemic cratered demand and potentially permanently changed the way energy is consumed in some areas of the economy. Refining margins, which represent a telltale sign of how demand is coming back, remain at their lowest seasonally since 2010.
The price jump was magnified as those who were short were forced to close their positions on a rush, triggering a buying spree that exaggerated the impact of the vaccine news. The price movement was particularly brutal for so-called timespread, where traders bet on the price of oil at different points on the calendar.
"At a minimum, what today's news has done is put a floor into the oil market, pushing short sellers away," said Michael Tran, a commodity strategist at RBC Capital Markets LLC. "This is a significant step in the right direction, but there's still head winds at play ... the duration between now and when demand actually returns is still an open-ended question."
Prices had earlier rallied as former Vice President Joe Biden declared victory in the U.S. presidential election and began preparations to navigate America's pandemic-hit economy out of crisis, with potential shifts coming on a range of policies from fiscal stimulus to Iranian sanctions.
Saudi Arabia's energy minister said Monday that global energy producers have the ability to tweak an agreement on production cuts that could be extended through the end of 2022, signaling the anticipation of continued weakened demand for oil as the coronavirus pandemic peaks again in Europe and the United States
"OPEC has been and continues to be taking a proactive role," said Prince Abdulaziz bin Salman during the Abu Dhabi-sponsored International Petroleum Exhibition and Conference in the United Arab Emirates, which is taking place virtually this year.
"We're keeping our flexibility in our hands," Prince Abdulaziz said, without committing specifically to how far into the future cuts of 7.7 million barrels of oil a day or more could go on for.
"I don't put policy lines ahead of reaching out to everybody," he said.
The OPEC oil cartel, led by Saudi Arabia, and non-OPEC nations including Russia agreed in April to cut as much as 10 million barrels of crude a day, or a tenth of global supply, until July to keep oil prices from plunging amid lower demand for crude.
The so-called OPEC Plus agreement aimed to ease those cuts to 7.7 million barrels per day through the end of the year, and to nearly 6 million a day for 16 months beginning in January.
The United Arab Emirates' energy minister, Suhail al-Mazrouei, also echoed confidence in the OPEC Plus agreement, saying the deal has been working.
"We have also demonstrated as a group that we've been very disciplined," he said.
The OPEC Plus countries are convening again on Nov. 17, but there's no guarantee they will be able to agree on deeper cuts into 2021 given that some countries are losing revenue amid existing quotas on production.
Before the Pfizer vaccine announcement, the virus had dampened the price of oil, affecting key revenue for oil-producing nations.
Information for this article was contributed by Andres Guerra Luz of Bloomberg News and by Aya Batrawy of the Associated Press.