U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading higher on Tuesday on positive news on vaccine trials and after European Union (EU) leaders announced a deal on a 750 billion Euro ($857 billion) recovery fund to help the region recover from the coronavirus crisis. However, prices are still trading inside a three week range amid fears that new lockdowns could derail a recovery in demand.
The markets were under pressure most of the session on Monday as investors trimmed long positions on worries over coronavirus-related demand destruction and OPEC+’s decision to taper its on-going production cuts that have helped drive the markets higher for two months.
Oil prices turned around late Monday by positive news on the development of vaccines as drugmakers and medical institutions rush to find a way to counter the world’s worst health crisis in a century.
Slew of Positive News on Coronavirus Vaccine Front Fuels Rally
On Monday, John Kemp from Reuters wrote, “Hedge fund position-taking in crude and products remains desultory as uncertainty about the future direction of prices and the course of the coronavirus pandemic compounds the normal summer-time trading slowdown.”
He also wrote, “Overall, the hedge fund community is running a neutral position in petroleum, but slightly weighted towards crude rather than fuels.”
This neutral stance appears to have changed quickly after positive news in the hunt for a coronavirus vaccine buoyed market sentiment late Monday.
Pfizer and BioNTech reported early positive data on a joint coronavirus vaccine Monday and another candidate from Oxford University and AstraZeneca also showed a positive immune response in an early trial.
EU Leaders Reach Breakthrough Stimulus Agreement
Crude oil prices are also being supported by news of a European Union recovery fund deal that European Council President Charles Michel said he believes will be seen as a “pivotal moment” for Europe.
The positive developments over the vaccine and the EU agreement may be enough to finally launch crude oil prices into new territory after trading in a range for nearly three weeks. This will happen if speculators decide to bet that the news will overcome any potential demand losses due to the surge in COVID-19 cases in the United States and globally, and the expected rise in supply form OPEC+’s tapering of its output cuts.
Later on Tuesday at 20:30 GMT, traders will get a chance to respond to the latest inventories data from the American Petroleum Institute (API). This report is expected to show a 1.3 million barrel draw down.
For a look at all of today’s economic events, check out our economic calendar.