Photographer: Angus Mordant / Bloomberg
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 rallied past $ 48 a barrel after falling 1.3% on Monday. A fall in the dollar has strengthened the appeal of commodities such as oil, which are priced in the currency. Crude oil was also helped by an improvement in broad market sentiment after the House backed higher stimulus controls following President Donald Trump’s signing of a $ 900 billion virus-fighting package.
However, the coronavirus continued to rise unabated. Southern California will be one lockdown amid an increase in the number of cases, 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 said last week that the nation would support a further gradual increase in production in February.
“Renewed concerns about the virus will limit the positive impact for oil in the short term,” and noise around Russia supposedly preferring more output in February won’t help either, said Warren Patterson, head of raw materials strategy at ING Group NV in Singapore. Price moves will be driven by Covid-19 developments, he said.
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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 increase oil production could undermine the alliance’s efforts to increase production while preventing the market from being flooded.
Brent’s quarterly time spread was 15 cents a barrel in contango, a bearish market structure where nearly dated prices are cheaper than later dated. The spread was a whopping 27 cents in backwardation earlier this month, with the change reflecting deteriorating market sentiment.