"Today is a great day for science and humanity," said Dr. Albert Bourla, CEO of COVID-19 vaccine developer Pfizer. That statement came with the company's data that its vaccine candidate proved to be more than 90% effective in preventing the virus in a study of thousands of volunteers worldwide. That news is fueling a massive rally in the stock market, with industries hardest hit by the pandemic leading the way.
The oil sector is in that group, as the coronavirus crisis has crushed demand for oil this year, causing crude prices to plunge. However, today oil is in rally mode. The global oil price benchmark, Brent, has surged nearly 9% as of 9:30 a.m. EST. WTI, the U.S. oil price benchmark, has jumped more than 10%. That rebound in the oil market fueled massive gains in most oil stocks, including leading big oil producers BP (NYSE:BP), Shell (NYSE:RDS.A) (NYSE:RDS.B), ExxonMobil (NYSE:XOM), Chevron (NYSE:CVX), and Total (NYSE:TTE), which all rallied by double digits in pre-market trading.
Fueling the surge in big oil stocks is the hope that this vaccine signals the beginning of the end for the global pandemic that has killed more than 1 million people while wreaking havoc on the global economy. Government-mandated shutdowns earlier this year to slow the spread of the virus tanked oil demand, forcing OPEC and other major oil-producing nations to enact historic production cuts to better match supplies with weakening demand.
The OPEC agreement calls for easing its production cuts from the current level of 7.7 million barrels per day (BPD) to 5.7 million BPD in January. However, the group's leader, Saudi Arabia, said that it would maintain its current production level if needed to keep supplies from running ahead of demand until it recovers. An increase in consumption seems much more likely now that there appears to be a highly effective vaccine on the way.
Those dual catalysts provided a jolt to the beleaguered oil market. Major oil producers BP, Chevron, Exxon, Shell, and Total have been under significant pressure this year due to weak oil demand and lower oil prices. Those headwinds had forced BP and Shell to slash their dividends, while Exxon kept its flat for the first time in 38 years. Meanwhile, these big oil producers also reduced investment spending and jobs to cut costs so that they can better weather this year's deep downturn.
While the vaccine news and the potential additional support of OPEC are both near-term positives for these oil stocks, the longer-term picture for the oil market has dimmed considerably this year. BP believes the industry has already reached the zenith for demand, which is leading the energy company to pivot toward renewable energy. Total and Shell are making similar moves away from oil, putting pressure on Exxon and Chevron to reconsider their strategies.
The entire world is breathing a sigh of relief today on the hope that we're turning the corner on this pandemic. That's fueling massive rallies in the shares of industries and companies most impacted by the virus.
However, while oil stocks are participating in today's rally, it could be a short-lived boost. That's because the pandemic might have permanently impacted crude oil demand due to the rise of telework, which has the potential of permanently reducing travel for both daily commutes and business trips. Add that to the increasing rise of renewables, and big oil might continue to shrink in the coming years.