Oil Flirts With $54 Aided by Drop in Dollar Amid Demand Optimism

(Bloomberg) -- Oil rose past $54 a barrel with help from a falling dollar after jumping the most in three weeks on optimism over the demand outlook.

Futures in New York headed for the highest close in almost a year after being swept up with a rally in U.S. stocks to rise 2.6% Monday. Saudi Aramco said it sees demand returning to pre-virus levels later this year. Royal Dutch Shell Plc raided the North Sea market, buying the most benchmark-grade cargoes in a single day in 10 years in the S&P Global Platts pricing window. A weakening dollar boosts the appeal of commodities that are priced in the currency.

Crude’s futures curve kept strengthening, suggesting the large stockpiles built up last year are shrinking fast and will continue to do so. Brent’s prompt timespread is 27 cents a barrel in backwardation, a bullish market structure where near-dated prices are more expensive than later-dated ones.

Oil still faces a challenging short-term demand environment amid concern Covid-19’s new variants will lead to more lockdowns and as vaccine rollouts don’t go as smoothly as anticipated in some countries. A recent resurgence of the virus in Asia is setting back a fragile recovery in transport fuels.

“Demand sentiment appears to have almost done a U-turn, no doubt helped in large part by a sustained drop in Covid-19 cases as well as deaths in the U.S.,” said Vandana Hari, founder of consultancy Vanda Insights in Singapore. “That has eclipsed last week’s bearishness over the EU’s vaccine troubles.”

There could be some relief for Asian fuel demand, however. Japan should look to reinstate a domestic travel incentive program as soon as March, according to a senior official from the ruling Liberal Democratic Party.

OPEC may also be adding less supply into the market than expected. While the group raised crude production as planned last month, the monthly change was barely two-thirds of the scheduled amount as increases by OPEC’s Persian Gulf exporters were offset by disruptions in Nigeria and Libya.

Iraq’s crude oil exports, meanwhile, were nearly unchanged in January, meaning the nation may have failed to meet its pledge to cut overall output to the lowest level in six years.

©2021 Bloomberg L.P.