(Bloomberg) -- Oil edged lower after closing at an eight-month high as an industry report showing U.S. stockpiles rose last week took some of the wind out of a rally driven by optimism coronavirus vaccines will soon be available.
Futures in New York fell as much as 0.4% in early Asian trading after jumping 4.3% on Tuesday. The American Petroleum Institute reported that crude inventories swelled by 3.8 million barrels, according to people familiar with the data. That would be the third straight week of rising stockpiles if confirmed by government figures due later on Wednesday.
Crude has surged around 25% this month amid positive results for three vaccines for Covid-19. The triggering of a formal transition process to U.S. President-elect Joe Biden drove a broad financial markets rally on Tuesday, with the S&P 500 Index closing at an all-time high and the Dow Jones Industrial Average topping 30,000 for the first time.
Oil has surged on the vaccine breakthroughs even as the short-term outlook for energy demand remains grim due to a resurgent virus and more lockdown measures in Europe and the U.S. Brent’s prompt timespread flipped into backwardation -- where near-dated contracts are more expensive that later-dated ones -- earlier this week, a bullish signal that suggests the market may be moving into deficit.
One of the most significant shifts in the shape of the forward curve is the strengthening of the so-called WTI red spread, with futures for December of next year at a premium relative to December 2022. The move to backwardation often attracts passive flows into the market, leading to further price rallies.
See also: Oil Curve Flips Most Bullish in Months After Vaccine Rally
While the market may be strengthening on the outlook for improved prospects for consumption, the pandemic’s effects are still being felt. Total SE said it will halt its Donges refinery for several months as it’s currently unprofitable due to weak demand. Several refineries in the U.S. have shut because of the collapse in fuel demand.
©2020 Bloomberg L.P.