Oil rises slightly on vaccine hopes, but demand fears cap upside

A line handler helps dock the oil tanker, Texas Voyager, as it pulls into its mooring to offload its crude oil at Port Everglades on April 21, 2020 in Fort Lauderdale, Florida.
Joe Raedle | Getty Images

Oil prices were little changed on Tuesday as worries that lockdowns to fight a new surge in coronavirus cases could hit short-term demand counteracted hopes for a vaccine and the possibility of tighter OPEC+ supply policies.

Brent futures advanced 8 cents to $43.90 per barrel, while U.S. West Texas Intermediate crude settled 9 cents, or 0.2%, higher at $41.43 per barrel.

On Monday, Brent closed at a 10-week high following Moderna Inc's announcement that its coronavirus vaccine was 94.5% effective. That followed similar news from Pfizer Inc last week.

But the short-term economic outlook remains hazy with several European nations tightening restrictions as coronavirus cases increase.

To tackle weaker energy demand amid a wave of new coronavirus cases, Saudi Arabia called on fellow OPEC+ members to be flexible in responding to oil market needs as it builds the case for a tighter production policy in 2021.

OPEC+, which groups the Organization of the Petroleum Exporting Countries (OPEC), Russia and others, lowered its outlook on oil demand growth for 2021, according to a confidential document seen by Reuters.

An option gaining support among OPEC+ nations is to keep the existing cuts of 7.7 million barrels per day (bpd) for a further three to six months, sources said, rather than tapering the reduction to 5.7 million bpd in January.

"It's widely expected OPEC+ will push back on plans to increase production ... in January but with the Pfizer and Moderna announcements pushing oil back above $40, there may not be the same support there as there was just over two weeks ago," said Craig Erlam, senior analyst at OANDA.

OPEC+ held a ministerial committee meeting on Tuesday that made no formal recommendation. The group will hold a full meeting on Nov. 30-Dec. 1.

"The lack of a recommendation forces the market to wait for the next episode of this saga before feeling comfortable again," said Bjornar Tonhaugen, head of oil markets at Rystad Energy, noting "we are in for a multi-month supply glut" if OPEC+ increases output from January.

In the United States, meanwhile, analysts said crude inventories likely rose 1.7 million barrels last week after gaining 4.3 million barrels in the prior week, according to a Reuters poll.

The poll was conducted ahead of reports from the American Petroleum Institute (API) industry group at 4:30 p.m. EST on Tuesday and the U.S. Energy Information Administration on Wednesday.