Oil prices edged higher on Wednesday on a weakening dollar and progress on the rollout of COVID-19 vaccines, though gains were capped by a surprise gain in U.S. crude inventories and tighter coronavirus lockdowns in Europe.
Brent crude futures rose 25 cents, or 0.5%, to $51.01 a barrel by 1017 GMT. U.S. West Texas Intermediate (WTI) crude futures were up 21 cents, or 0.4%, at $47.83.
“A weak dollar is helping support the price but the market is riding a wave of vaccine optimism. Yesterday, we had a strong rally due to the impending approval of a second COVID-19 vaccine,” said Harry Tchilinguirian, head of commodity research at BNP Paribas.
“The market is looking further ahead to the recovery instead of near-term low oil demand.”
The dollar on Wednesday hit its lowest level against a basket of currencies since April 2018.
Meanwhile, Moderna Inc’s COVID-19 vaccine appeared set for regulatory approval this week after U.S. Food and Drug Administration staff endorsed it as safe and effective.
The United States also expanded its rollout of the newly approved vaccine developed by Pfizer Inc and German partner BioNTech SE to hundreds of additional distribution centres on Tuesday.
U.S. congressional leaders, meanwhile, have reported substantial progress in the months-long standoff on coronavirus relief and a funding bill to avert a government shutdown.
The mood was dampened, however, by rising U.S. crude stocks and European lockdowns. U.S. Crude inventories swelled by 2 million barrels in the week to Dec. 11 to about 495 million barrels, according to industry group API.
Analysts had expected a draw of 1.9 million barrels, a Reuters poll showed. Official government data was scheduled for Wednesday.
For all the optimism surrounding the rollout of COVID-19 vaccines this month, the International Energy Agency (IEA) warned on Tuesday that the shattering blow to global oil demand will not be reversed quickly.
The IEA revised down its estimates for oil demand this year by 50,000 barrels per day (bpd) and for next year by 170,000 bpd, citing scarce jet fuel use as fewer people travel by air.
“On the demand side, the biggest near-term downside risk to oil demand expectations is the United States, predominately due to persistent weaknesses in U.S. gasoline demand, given the current trajectory of COVID-19 in the country,” analysts at FGE wrote in a note.
The imposition of stricter lockdowns in some European countries also casts a shadow over fuel demand.