Oil Slips as Broader Sell-Off Compounds U.S. Fuel Supply Rise

(Bloomberg) -- Oil reversed gains as a stronger dollar broadly weighed across commodities, while traders assessed rising fuel stockpiles in the U.S.

Futures in New York edged lower after switching between small gains and losses on Thursday. The dollar surged by the most in three weeks, making commodities priced in the currency less attractive, as a spate of strong U.S. economic data ratcheted up wagers the Federal Reserve may need to move faster on tapering its stimulus operations.

Meanwhile, U.S. government data showed domestic gasoline supplies rising by the most since early April and distillate inventories climbing by nearly 4 million barrels. That’s offsetting a back-to-back weekly draw in crude inventories.

“There’s been a lot of broad-based liquidation in commodities,” with dollar strength acting as a headwind, said Phil Streible, chief market strategist at Blue Line Futures LLC in Chicago. “But there’s no shortage of people driving and demand here, so oil’s just a victim of the other markets at the moment.”

Upbeat comments on the recovery earlier this week from OPEC+ and the International Energy Agency underscored in the longer term.

“To have a draw that big on the crude oil side is really constructive for overall crude markets,” said Brian Kessens, a portfolio manager at Tortoise, a firm that manages roughly $8 billion in energy-related assets. However, the refined products build was disappointing and may be due to an increase in refinery utilization ahead of the summer driving season, he said.

Still, crude remains on track to post a second straight weekly gain with optimism growing around the demand rebound from the U.S. to the U.K. and parts of Asia. As forecasts of a tighter market abound, Saudi Arabia hiked its official selling prices to Asia by more than expected. Still, the nation’s energy minister reiterated that evidence of higher demand will have to come before supply increases.

Nuclear talks between Iran and world powers, meanwhile, have been adjourned until next week as differences between Tehran and the U.S. delay the revival of a deal. The prospect of returning Iranian barrels is setting up a possible battle to supply the South Korean market with condensates.

Some of the biggest moves in recent days have come in the oil market’s structure. The much-watched spread between the nearest two December contracts has rallied to its strongest level since 2019 on a rolling basis, with a premium of more than $5 a barrel for WTI. That structure indicates tight supply.

Despite crude’s rally, holdings of ICE Brent futures contracts have fallen sharply in recent weeks. Total open interest on the global benchmark is near its lowest since December, and was overtaken by Nymex WTI for the first time since 2018 in recent days.

See also: Investors Sit on the Sidelines in Oil Price’s Drift Through $70

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