Oil traded near the highest level in five months amid signals that US coronavirus cases are slowing, boosting optimism that fuel demand may soon turn a corner.
Futures in New York rose as much as 2.4% on Tuesday before easing gains as the dollar edged up from session lows, diminishing the appeal of commodities priced in the currency. The number of Americans hospitalised due to Covid-19 fell below 50 000 for the first time in a month as a spike in the Sun Belt eased, while Russia said it had registered the world's first vaccine.
"The fact that the Covid cases seem to be tapering off in the U.S. is making people a little more optimistic about getting it under control and demand recovering toward the end of the year," said Michael Lynch, president of Strategic Energy & Economic Research.
Still, the Organisation of Petroleum Exporting Countries and its allies will ease their historic output curbs this month, holding futures back from rallying past levels seen in March. Rystad's head of shale research said unless prices moved back toward $50 a barrel in the next few weeks, a rig activity rebound is unlikely before the first half of 2021.
The Bloomberg Dollar Spot Index pared losses after earlier weakening as much as 0.4%.
Meanwhile, Russia's vaccine will be produced at two plants, Health Minister Mikhail Murashko said at a meeting. While trials will continue, production will also begin.
The vaccine news "is exactly the shot in the arm that would spark oil demand back in a big way, if we could make it across that finish line," said John Kilduff, a partner at Again Capital LLC. "But as more details come out, it's being called increasingly into question."
West Texas Intermediate for September delivery rose 39 cents to $42.33 a barrel as of 12:00 p.m. in New York. Brent for October settlement gained 28 cents to $45.27 a barrel.
In physical markets, crude in Texas's Permian basin this week traded at its strongest intraday level in over two weeks before easing on Tuesday. Meanwhile, West Texas Sour rose 10 cents to 25 cents over Nymex WTI futures, its highest premium in almost a month.
Meanwhile, crude stockpiles in the US are seen shrinking in government data that will be released Wednesday. Macquarie forecast that domestic supplies dropped by 8.5 million barrels last week.
The industry-funded American Petroleum Institute is set to report its weekly tally later on Tuesday.