Oil prices drop as near-term demand concerns overshadow COVID-19 vaccine hopes

By Sonali Paul
MELBOURNE, Nov 10 (Reuters) - U.S. oil prices fell in early
trade on Tuesday as concerns over demand in the near term in
coronavirus-hit economies in Europe and the United States
returned to haunt the market after an overnight surge on
progress towards a COVID-19 vaccine.
U.S. West Texas Intermediate (WTI) crude CLc1 futures
dropped 81 cents, or 2%, to $39.48 a barrel at 0029 GMT, having
jumped 8% on Monday, its biggest daily gain in more than five
months, after drugmakers Pfizer PFE.N and BioNTech 22UAy.F
said an experimental COVID-19 treatment was more than 90%
effective based on initial trial results. "A viable vaccine is unequivocally game-changing for oil - a
market where half of demand comes from moving people and things
around," JP Morgan said in a note
"But as we have written previously, oil is a spot asset that
must first clear current supply and demand imbalances before
one-to-two-year out prices can rise."
Rystad Energy said lockdowns in Europe could result in the
loss of a further 1 million barrels per day of oil demand by the
end of this year, while it would take several more months before
a vaccine would be available.
"The fast-tracking of multiple vaccines doesn't mitigate the
risk that many U.S. states will have to return to some form of
lockdown this autumn/winter," Rystad Energy's head of oil
markets Bjornar Tonhaugen said.
Tuesday's decline was tempered by comments from Saudi
Arabia's energy minister, who said on Monday that the
Organization of the Petroleum Exporting Countries (OPEC) and its
allies, together known as OPEC+, could take more oil off the
market if demand slumps before the vaccine is available.
OPEC+ agreed to cut supply by 7.7 million barrels per day
from August through December to help support prices and then
ease the cut to 5.7 million bpd from January.
OPEC+ is set to hold its next meeting on November 30 and
December 1.