Oil prices up by 3% amid bullish demand outlook

Oil prices rose by three per cent on Tuesday, extending sharp gains on a bullish demand outlook as U.S. regulators issued their first full approval for a COVID-19 vaccine and Mexico suffered a large production outage due to a fire on an oil platform.

Brent crude oil futures were up $2.13, or 3.1 per cent, at $70.88 a barrel while U.S. West Texas Intermediate gained $1.92, or 2.9 per cent, to $67.54.

Last week, both benchmarks notched their biggest weekly losses in more than nine months. On Monday, both jumped more than 5 per cent, boosted by a weaker dollar.

A resurgent pandemic has fuelled health system concerns, “economically harmful containment measures seem rather unlikely”, said Julius Baer analyst Norbert Rucker, citing the effectiveness of vaccines.

On Monday, the U.S. Food and Drug Administration (FDA) issued full approval for the Pfizer/BioNTech two-dose vaccine, having authorized it for emergency use last December. Officials hope to convince unvaccinated Americans the shot is safe and effective.

Analysts said China’s apparent success in fighting the spread of the Delta variant also boosted demand sentiment, with no cases of locally transmitted infections in the latest data.

“Concerns are easing that we will not see a global shutdown due to the Delta variant of the coronavirus,” said Gary Cunningham, director of market research at Tradition Energy in Stamford, Connecticut.

Also supporting oil prices was a fire on an oil platform off Mexico on Sunday. Five workers died and the fire halted 421,000 barrels per day of production.

“The market is getting a tailwind from the PEMEX fire, which has greenlighted this rally,” said Bob Yawger, director of energy futures at Mizuho in New York.

Still, Yawger cautioned that the market could reverse course if U.S. government data on Wednesday shows gasoline inventories increased.

Analysts polled by Reuters expect gasoline inventories to fall, but Yawger expects a gain, which could signal a demand lull. The U.S. Department of Energy on Monday said it would sell up to 20 million barrels of crude from the Strategic Petroleum Reserve (SPR) oil stocks to comply with legislation, with deliveries to take place between Oct. 1 and Dec. 15.