West Texas Intermediate increased 0.9%, reversing some of Thursday’s slump as the dollar’s drop makes commodities priced in the currency more attractive. Prices are still headed for a weekly fall with the spread of Covid-19 in Asia menacing demand.
There were positive signs in the shape of the futures curve too, with Brent’s nearest contract gaining as much as 10 cents over the next month. A growth in that structure, known as backwardation, is suggesting the market is expecting tighter supplies and reverses an earlier slump.
Oil has rallied this year with the rollout of vaccines. But the gains have stalled since early March amid infection flare-ups in Asia and concerns over inflation. This week’s decline in prices has come despite the International Energy Agency saying the global glut that built up last year has cleared. Federal Reserve policy makers also signaled continued backing for the U.S. economy.
“The energy market is benefiting from the general risk-on rally following yesterday’s broad-based selloff in risk assets over U.S. inflation concerns,” said Kevin Solomon, an analyst at brokerage StoneX Group. “The market will be angling for any further evidence for improvements in oil consumption.”
The recovery in the U.S. has been solid, boding well for energy consumption in the world’s largest economy. President Joe Biden’s administration announced Thursday that fully vaccinated Americans can ditch masks in most settings.
But India’s sustained struggle with the latest outbreak is continuing to impact markets. Some local ports have declared force majeure due to staffing shortages. Eslewhere in the region, Singapore will reimpose curbs, Japan plans to extend restrictions and China saw its first coronavirus infections in about a month.
“Reimposed lockdowns in southeast Asia and Iran nuclear deals versus demand improvement in the U.S. and EU is the main battle short term,” said Helge Andre Martinsen, senior oil market analyst at DNB.