Oil increases with the help of the dollar amid bleak short-term prospects

Photographer: Angus Mordant / Bloomberg

Oil rose with support from the weakening dollar, with investors evaluating a worsening outlook for short-term demand against an eventual recovery with the launch of the Covid-19 vaccines.

New York futures rose to $ 48 a barrel after dropping 1.3% on Monday. A fall in the dollar has increased the appeal of commodities like oil, which are priced in currency. Oil was also helped by an improvement in market sentiment after the House supported higher stimulus checks following President Donald Trump’s signature of a $ 900 billion virus relief package.

The coronavirus continued to increase without decreasing, however. Southern California is set to extend a lockdown amid an increase in cases, while Germany is concerned about the slow pace of its the launch of vaccines can prolong the economic damage of the pandemic. The virus is also returning in Asia, with Thailand tightening of South Korea’s restrictions and daily rates the number of deaths reaching a record high.

The rally driven by the Crude vaccine has faltered in recent weeks in signs that it may have been ahead of the recovery in energy demand. The OPEC + alliance is also expected to add another 500,000 barrels of production per day to the market starting in January, while Russia’s deputy prime minister told the nation last week would support a further gradual increase in production in February.

“Renewed concern about the virus will limit the positive side of oil in the short term” and the noise around Russia, supposedly favoring increased production in February, will also not help, said Warren Patterson, head of commodity strategy at ING Groep NV in Singapore. Price movements will continue to be driven by developments at Covid-19, he said.

Prices
The West Texas Intermediate for February delivery rose 0.9% to $ 48.06 a barrel on the New York Mercantile Exchange as of 7:49 am in London Brent for February settlement rose 0.9% to $ 51.33 on the ICE Futures Europe exchange, after falling 0.8% on Monday

OPEC + will meet next week to decide on production levels for February, with traders looking for indications of changing sentiment among its members. In the long run, Iranian plans to increase oil production could undermine the alliance’s efforts to increase production by avoiding flooding the market.

Brent’s three-month spread was 15 cents a barrel in contango, a bear market structure where nearby prices are cheaper than previous ones. The spread was up to 27 cents late at the beginning of this month, with the change reflecting the worsening of market sentiment.