Oil prices stumble as Brent reenters contango

(Bloomberg) --Oil swung between gains and losses as the market weighed the outlook for demand as coronavirus vaccines begin.

Futures in New York traded below $46 a barrel, driven by fluctuations in the dollar and equities. The UK issued its first Covid-19 vaccinations on Tuesday and there are signs that European demand is recovering after a renewed wave of lockdowns in the winter. Poland’s road use, for example, has climbed sharply since the start of last month.

WTI prices have been capped in the mid $40s since OPEC+ agreed on a slow return of production last week. The United Arab Emirates will provide Asian buyers with a little more crude next month after the deal.

Oil is still near a nine-month high after surging last month amid optimism over vaccine breakthroughs and its trajectory over the next few months will depend on how quickly Covid-19 drugs can be deployed. In the near-term there are still ominous signs from the virus -- the U.S. is now seeing hospitalizations rise by almost 2,000 a day and is averaging around as many deaths as during Covid-19’s first surge in April. France is poised to miss a goal to end its lockdown next week.

“We are confident that the weak demand will soon move back into the market’s focus,” said Eugen Weinberg, head of commodities research at Commerzbank AG. “The latest price rise has been driven by speculation.”

Prices:

• West Texas Intermediate for January delivery fell 14 cents to $45.62 a barrel at 10:30 a.m. in London
• Brent for February settlement dropped 15 cents to $48.64

The oil futures curve, meanwhile, is signaling a slight increase in negative sentiment. Brent’s prompt timespread has moved back into contango -- where near-dated prices are cheaper than later-dated ones -- after surging last week.

While toughening restrictions to curb the spread of the virus remain a near-term headwind in Europe and the U.S., the recovery in Asia appears to be accelerating. Chinese exports jumped by the most since early 2018 last month. The strength in Asian demand led Saudi Arabia to raise oil pricing to the region and has also contributed to an increase in physical prices of North Sea crude.

Other oil-market news:

• The U.S. announced sanctions Monday against 14 members of China’s National People’s Congress, the country’s rubber-stamp legislature, as the Trump administration tries to ratchet up pressure on Beijing over its crackdown on dissent in Hong Kong.
• South Korea and Japan look set to be the biggest winners in the Asian oil and chemicals marketplace as the world’s largest regional free-trade agreement paves the way for a gradual reduction in tariffs.