Oil prices rebound on Covid-19 vaccine news, but demand remains an issue

NEW YORK (Bloomberg) --Oil prices recovered Monday, tracking a rally in U.S. equities, as a coronavirus vaccine the University of Oxford is developing with AstraZeneca Plc showed promising results in early human testing.

The S&P 500 Index rose and AstraZeneca also gained as a positive outcome had been widely expected with the vaccine already in more advanced trials. Still, crude futures in New York were unable to eke out a strong rally after earlier falling as much as 1.9% in the wake of pandemic-driven demand concerns. Infections flared by a record in Hong Kong, Los Angeles is on the brink of another stay-at-home order and the new rate of people testing positive for the first time in Florida climbed to nearly 15%.

“In the short-term, there’s still some challenges, but if we do get closer to a vaccine, the market may be able to forget the short-term demand weakness with the expectation it’s going to come back a lot stronger down the road,” said Phil Flynn, senior market analyst at Price Futures Group Inc.

Crude has been stuck in a holding pattern this month as a resurgent coronavirus in various parts of the world proves demand weakness is here to stay for the near-term. Global virus cases are approaching nearly 15 million.

Signals that U.S. companies, like Chevron Corp., may start ramping up shale production as the OPEC+ alliance prepares to unleash crude back onto the market next month are also adding to the negative sentiment.

“The rising infection rates are adding doubt to the idea that demand is going to recover uninterrupted,” said Bart Melek, head of global commodity strategy at TD Securities in Toronto. “This virus in no way is done, but continues to be a big issue.”

In another warning sign for the oil market, Chinese demand is cooling off. A rebound in consumption in the Asian giant helped drive crude higher, but the price of physical oil barrels traded in Asia has slipped with the country’s buying spree slowing in recent weeks. 

Prices:

• West Texas Intermediate for August delivery, which expires Tuesday, rose 2 cents to $40.61 a barrel as of 12:28 p.m in New York.
• The more-active September futures added 1 cent to $40.76 a barrel.
• Brent for September settlement was unchanged at $43.14 a barrel.

Russia is signaling that it’s serious about using any extra supply locally and won’t send it to key refining markets like northwest Europe. While Russia’s export plan is still not finalized, shipments of Urals crude in August are likely to be broadly in line with this month’s levels, according to people familiar with the matter. That would be consistent with a loading plan for the first five days of August, and comments from Energy Minister Alexander Novak that increased oil production is going to be used internally.

Other oil-market news:

• Chevron Corp. agreed to buy Noble Energy Inc. for about $5 billion in shares as the oil giant looks to beef up amid the wreckage of the worst-ever crude crash.
• At almost any other moment in history, the promise of producers pouring millions of barrels of crude into the global market would have been cause for celebration in the world’s shipping hubs. But Covid-19 means that this is a time like no other.
• BP Plc has placed some personnel from its Singapore-based crude oil team on leave after they were mentioned in court documents filed in disputes between banks and other trading houses, said people with knowledge of the company’s move.