Oil is trading at its highest level since March as the commodity is swept up in wider market enthusiasm about the US presidential transition process getting underway and positive progress on the vaccine front.
Brent (BZ=F) was up as much as 1% on Tuesday, sitting at $46.47 (£34.26) a barrel at around 10:40am in London.
European markets rallied on Tuesday in the wake of US General Services Administration chief Emily Murphy writing a letter on Monday that confirmed President-elect Joe Biden could formally begin the hand-over process.
Market enthusiasm was also buoyed by the latest news on the vaccine front. AstraZeneca (AZN) said on Monday that its COVID-19 vaccine could be as much as 90% effective, be cheaper to make, easier to distribute and faster to scale-up than its rivals.
“The oil market has for a long time been shrouded with fog, with predictability extremely difficult with respect to both the timing and magnitude of an oil demand rebound,” said Bjarne Schieldrop, chief commodities analyst at SEB.
“This fog has now been lifted and blown away.”
Still, Schieldrop contends that a “Biden administration is bad news for oil” as he is expected to accelerate the green energy transition as well as the electrification of transportation, which will lower oil demand over the long-term.
While the Organization of the Petroleum Exporting Countries and its allies (OPEC+) are expected to extend current output cuts into next year, some members of the group are facing major obstacles. For instance, Iraq is seeking upfront payments of about $2bn for a long-term crude-supply contract, as the country continues to suffer an economic crisis due to low oil prices and wider OPEC+ cuts.
“Once financial markets know the oil market will tighten up, that inventories will decline and the oil market will move from a surplus situation to a tightening situation, then the forward crude oil price curve flattens almost overnight, well before the physical tightening actually begins,” said Schieldrop.