Oil Falls With Stronger Dollar Compounding Latest Virus Risks - Bloomberg

An oil pumping jack, also known as a "nodding donkey", in an oilfield near Neftekamsk, in the Republic of Bashkortostan, Russia.

Photographer: Andrey Rudakov/Bloomberg

Oil fell alongside a strengthening dollar as near-term risks to the demand recovery emerged ahead of a OPEC+ meeting this week to decide on output policy.

Futures in New York clung to losses after falling as much as 2.6% on Tuesday. An OPEC+ technical panel is revising down the group’s demand estimates for the year following suggestions from Saudi Arabia, according to delegates. The dimmer outlook for consumption in the coming months comes as the oil market contends with setbacks to the near-term trajectory of economic reopening plans worldwide.

Meanwhile, the Bloomberg Dollar Spot Index rose to the highest since November, reducing the appeal of commodities priced in the currency. Weaker U.S. equities also weighed on oil prices, while Treasury yields rose.

“Overall, there’s concern on the demand outlook and how quickly we’re going to recover,” said Gary Cunningham, director at Stamford, Connecticut-based Tradition Energy. But OPEC+ is likely “maintaining the cuts longer than anticipated, because we’re not seeing that recovery in demand.”

Crude has been trending higher since October but retreated recently

Oil prices have pulled back in recent weeks as the coronavirus situation deteriorates in parts of the world ahead of a widely anticipated demand rebound once enough people are vaccinated. Germany will change its recommendation on the use of AstraZeneca Plc’s Covid-19 vaccine to only for people over 60 in another threat to Europe’s inoculation campaign, while the head of the U.S. Centers for Disease Control and Prevention warned of “impending doom” as cases and deaths in the country pick up.

All eyes are now on OPEC and its allies, whose ministers gather Thursday to decide output policy for May and possibly beyond, and are expected to maintain tight curbs to deplete global inventories further.

“The U.S. dollar continues its rapid ascent, pressuring commodity prices lower with oil and metals taking the brunt of the selling,” said Ryan Fitzmaurice, commodities strategist at Rabobank. The dollar strength “undermines the inflation worries and fears of currency debasement, both of which have been key factors in the renewed commodity index interest this year.”

At their virtual session, OPEC and its partners will consider whether to revive part of the 8 million barrels of daily output -- about 8% of global supply -- that they’re withholding. At their last gathering earlier this month, the group had been widely expected to return some barrels to the market but, led by Saudi Arabia, opted not to do so given the sustained threat posed by the pandemic.

Prices:
WTI for May delivery fell $1.05 to $60.51 a barrel at 12:08 p.m. in New York Brent for the same month lost 84 cents at $64.14 a barrel

Brent is probably stuck around $65 a barrel for the time being, according to Torbjorn Tornqvist, chairman and chief executive officer of Gunvor Group Ltd. The continuing spread of Covid-19 in Europe means demand won’t come back as quickly as anticipated and the market has large amounts of spare capacity.

The nearest timespreads for both WTI and Brent have been reflecting the weakness in recent sessions. WTI’s so-called prompt spread has erased its backwardation -- a bullish structure in which nearby contracts trade at a premium to later ones -- while Brent’s is on the verge of doing so ahead of the May contract’s expiry this week.

Still, there was bullish news on the supply side, with benchmark North Sea crude loadings for May planned at their lowest level since at least 2007. The decline comes amid summer maintenance, notably on the key Forties grade.

In the U.S, crude inventories are expected to have declined last week, according to a Bloomberg survey, which would snap a five-week streak of increases if borne out in the U.S. government’s weekly storage data. The American Petroleum Institute will report its figures later Tuesday ahead of the Energy Information Administration’s data.

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Oil Falls With Stronger Dollar Compounding Latest Virus Risks - Bloomberg

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