Oil is pushing higher backed by dollar despite cloudy demand outlook

Photographer: Angus Mordant / Bloomberg

Oil pushed higher on the back of a weakening dollar as investors weigh the deteriorating near-term demand outlook against a possible recovery as the Covid-19 vaccines are introduced.

New York futures rose more than $ 48 a barrel, although liquidity was scarce between Christmas and New Year. A fall in the dollar increased the appeal of commodities such as oil priced in the currency. Crude oil was also helped by broader market power, with shares heading for a record after the signing of a $ 900 billion virus-fighting package from US President Donald Trump.

However, the coronavirus continues to increase unabated. Southern California will be one lockdown, while Germany is concerned about the slow pace of its vaccine roll-out could prolong the pandemic’s economic damage. The virus is also making a comeback in Asia, with Thailand tightening restrictions and South Korea’s daily death toll rises to a record.

Crude’s vaccine-fueled rally has been stranded in recent weeks on signs that it may be ahead of the recovery in energy demand. The OPEC + alliance will also add an additional 500,000 barrels per day to the market from January, while Russia’s Deputy Prime Minister has said the nation would support a further gradual increase in production in February.

Oil prices “look several months ahead rather than the short term,” said Ole Hansen, Saxo Bank’s head of commodities strategy. Incentives “support the reflationary trade, which is also part of the growing hunger for commodities.”

OPEC + will meet next week to decide production levels for February, with traders on the lookout for indications of shifting sentiment among its members. In the longer term, Iranian plans to ramp up oil production could undermine the alliance’s efforts to increase production.