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Oil Up, Hopes Rise that Vaccines, Tight Supply Will Offset COVID-19 Worries

Oil was up Tuesday morning in Asia, with prices steadying from Monday’s fall. Investors are hoping that tight supply and rising vaccination rates will offset the impact of rising global COVID-19 cases on fuel demand.

Brent oil futures gained 0.37% to $73.97 by 12:05 PM ET (4:05 AM GMT) extending the 0.5% gain recorded on Monday. WTI futures were up 0.32% to $72.14 after dropping 16 cents on Monday.

The surging number of COVID-10 cases prompted the U.S. to issue travel warnings to Spain and Portugal and a White House official to tell Reuters on Wednesday that wider travel curbs will not be immediately lifted.

But in the U.K., the lowest daily total of new Covid-19 cases since Jul. 4 was recorded on Monday, with hopes rising that the country’s latest surge in cases has passed its peak.

Some investors were optimistic about the fuel demand outlook as they looked to COVID-19 vaccines to prevent new restrictive measures from being implemented.

“Higher vaccination rates will help cement the demand recovery,” IHS Markit vice president of energy consulting Victor Shum told CNBC, adding that the speed of demand growth will weaken in the latter part of 2021.

“We project oil prices to ease after peaking in the third quarter of 2021,” he said.

Despite Shum’s optimism, global oil markets are expected to remain in deficit even as the Organization of the Petroleum Exporting Countries and its allies, or OPEC+, resolved a supply dispute and will raise production through the rest of 2021.

However, other investors also remained optimistic.

“Robust road traffic data across most major regions suggests rising infections are having minimal impact... we are also encouraged by the continued restraint shown by U.S. shale oil producers. So far they have maintained discipline, with a focus on returns rather than growth,”

ANZ Research analysts said in a note.

Investors now await U.S. crude oil supply data from the American Petroleum Institute, due later in the day.

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