Oil Rallies With Prices Boosted by Dollar Dip, Stockpiles

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Oil prices climbed, fortified by a weaker dollar and shrinking stockpiles in the US, while China presses on with its easing of Covid-19 restrictions.

West Texas Intermediate traded near $79 a barrel, extending a more than 5% rally in the week’s first three sessions.The Energy Information Administration reported a 5.9-million-barrel draw in US commercial stockpiles last week, with nationwide holdings at the lowest level for this time of year since 2014. The US currency weakened on Thursday, making commodities more attractive for overseas buyers.

WTI Extends Rally | US benchmark trades above $79 a barrel

Alongside those forces, traders are monitoring closely China’s reopening from Covid-19. The nation is seeing 1 million infections and 5,000 deaths a day as curbs are eased, but quarantine rules for overseas travelers are being softened — a potential boost for air travel.

“Strong oil inventory draws we had this week in the US, Europe and the Middle East are helping crude prices,” said Giovanni Staunovo, a commodities analyst at UBS Group AG. “The market will closely follow a likely-bumpy road of the reopening in China and how much Russian oil exports fall” due to sanctions and trading restrictions.

Oil is poised to end a volatile year modestly higher. Recession risks in the US and Europe as central banks continue to tighten are among key headwinds. Against that, Group of Seven sanctions on Russian flows, and scope for OPEC and its allies to cut supply are boosting prices.

The G-7 has imposed a $60-a-barrel cap on Russian oil and no access to vital services including insurance and crew management for cargoes bought above that figure.

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Flow Down

The move is intended to punish Moscow for the invasion of Ukraine while keeping crude flowing. However, early tanker tracking by Bloomberg suggests initial post-cap shipments fell.

Trading volumes are also lower than normal as the market winds down for the year.

“I see as important catalysts driving today’s jump as the lack of liquidity, but also a market repricing for risk and revived concerns about supply scarcity, especially amid lower Russian flows,” said Daniela Corsini, an economist at Intesa Sanpaolo. “I’m bullish on crude prices in the near term as supply will probably remain constrained by OPEC+ output cuts and Western sanctions against Russia.”

China’s reopening, gas-to-oil switching, and strong oil refining margins should continue to boost crude, while OPEC+ supply cuts and sanctions on Russia are also causes to be bullish, she said.

Prices:

WTI for February delivery was 1.1% higher at $79.13 a barrel on the New York Mercantile Exchange at 8:16 a.m. in New York
Brent for February settlement added 1% to $82.98 a barrel on the ICE Futures Europe exchange.