Oil prices rise amid weaker dollar, optimism over market tightening
Crude futures gained traction on Friday, driven by a weaker U.S. dollar and signs of the market tightening after major oil producers agreed to cut output.
On the New York Mercantile Exchange, light, sweet crude futures for delivery in February CLG7, +0.31% traded at $51.53 a barrel, up $0.16 in the Globex electronic session. March Brent crude LCOH7, +0.22% on London’s ICE Futures exchange rose $0.14 to $54.30 a barrel.
The U.S. dollar DXY, -0.19% wavered as investors held back from making large moves ahead of President-elect Donald Trump’s inauguration speech on Friday.
The WSJ Dollar Index BUXX, -0.16% , which measures the U.S. currency against 16 others, was recently down 0.1% after rising as much as 0.3% on Thursday. As oil is traded in dollars, a weaker dollar gives foreign traders stronger buying power.
“Everyone is waiting to see if U.S. oil production will really surge under Trump,” a Singapore-based fuel oil trader said, adding that he expects volatile prices in the first 100 days of Trump’s administration.
An oil glut has depressed prices for more than two years. The price collapse prompted a group of 20 oil producers from within and outside the Organization of the Petroleum Exporting Countries to agree on an output cut last year.
Even though the deal only went into effect this month, the International Energy Agency said OPEC production has slowed, declining by 320,000 barrels a day to 33.09 million barrels in December.
“Early indications suggest a deeper OPEC reduction may be under way for January, as Saudi Arabia and its neighbors enforce supply cuts,” the IEA said.
The contraction in inventory levels has added to the encouraging news. IEA data showed oil storage in industrialized nations of the Organization for Economic Cooperation and Development fell in November.
“If the pattern continues it would be fair to assume a pickup in demand combined with lower production in early 2017 will see prices higher,” said Stuart Ive, a client manager at OM Financial.
However, rising oil prices in the wake of an output cut may prompt more U.S. shale producers to return to the oil patches. Seen as the marginal producer, higher U.S. output could easily wipe out OPEC’s efforts to remove surplus barrels.
That worry was reflected in the price movement Thursday. Oil prices pared gains after data from the U.S. Energy Information Administration showed crude stockpiles rose by 2.3 million barrels in the week ended Jan. 13. The increase upended analysts’ expectations for a much smaller expansion.
“The crude build was due to a drop in refinery runs signaling the beginning of maintenance season, while imports corrected only modestly following the previous week’s huge jump,” Societe Generale said in a note.
U.S. gasoline stocks also rose unexpectedly as production, down just 2,000 barrels from the previous week, was little changed despite softer domestic demand.
With slower global supply growth and lower production in many oil-guzzling countries, global demand is expected to rise. In China, the world’s second-largest oil importer, crude production for 2016 dropped 6.9% to 199.7 million metric tons, or 4 million barrels, the National Bureau of Statistics said Friday.
Nymex reformulated gasoline blendstock for February — the benchmark gasoline contract — rose 53 points to $1.5398 a gallon, while February diesel traded at $1.6205, 22 points higher.
ICE gasoil for February changed hands at $479.50 a ton, unchanged from Thursday’s settlement.
Source: MarketWatch
