Oil prices inched higher on Wednesday, paring earlier losses, as positive news on COVID-19 vaccines lifted investor hopes for a recovery in fuel demand, outweighing concerns over an unexpected jump in U.S. oil inventories last week.
Brent crude futures rose 11 cents, or 0.2%, to $48.95 a barrel by 0746 GMT, having gained 5 cents the previous day. U.S. West Texas Intermediate (WTI) crude futures climbed 9 cents, or 0.2%, to $45.69, after shedding 16 cents on Tuesday.
The American Petroleum Institute (API) said on Tuesday that U.S. crude oil, gasoline and distillate stocks rose sharply last week, with crude stocks jumping by 1.14 million barrels, against analyst forecasts in a Reuters poll for a draw of 1.42 million barrels.
Official weekly oil data from the U.S. Energy Information Administration (EIA) is due on Wednesday.
“The build in U.S. crude inventories raised a sense of caution among investors and prompted them to unwind long positions ahead of the EIA data in early trade,” said Chiyoki Chen, chief analyst at Sunward Trading.
“But brighter news about progress in vaccines development and hopes for U.S. economic stimulus by President-elect Joe Biden kept overall market sentiment upbeat,” he said, predicting Brent and WTI will head toward $50 a barrel later this month.
Britain began mass-vaccinating its population on Tuesday in a global drive that poses one of the biggest logistical challenges in peacetime history.
Pfizer cleared another hurdle on Tuesday when the U.S. Food and Drug Administration released documents that raised no new red flags over the safety or efficacy of the vaccine it developed with Germany’s BioNTech.
The vaccine news helped offset fears from a sharp rise in coronavirus cases globally that has led to a string of renewed lockdowns, including strict measures in California, Germany and South Korea.
“The recent rally looks to be overdone from a fundamental point of view, given rising oil output in Libya and the United States with weaker fuel demand across the globe,” said Kazuhiko Saito, chief analyst at Fujitomi Co.
“But the bullish tone is likely to continue amid hopes the pandemic can be brought under control with vaccines next year,” he said.
Hedge fund managers were substantial buyers of petroleum futures and options last week for a fourth week in a row, a sign of increasing confidence that coronavirus vaccines will drive a recovery in oil consumption next year.
The EIA said on Tuesday that U.S. crude oil production is expected to slide next year by 240,000 barrels per day (bpd) to 11.10 million bpd, a smaller decline than its previous forecast for a slide of 290,000 bpd.
Reporting by Yuka Obayashi; Editing by Richard Pullin and Tom Hogue