MW: Oil prices swing higher as dollar falls, Chinese demand grows
Crude oil prices erased earlier losses and swung higher on Thursday morning, getting a boost from strong demand growth in China, comments from OPEC’s secretary general and a slide in the dollar.
On the New York Mercantile Exchange, light, sweet crude futures for delivery in February CLH7, +1.15% climbed 25 cents, or 0.5%, to $52.49, on track for the highest settlement price since Friday.
March Brent crude LCOH7, +1.38% on London’s ICE Futures exchange rose 36 cents, or 0.7%, to $55.46 a barrel.
The moves build on almost 3% gains for both contracts on Wednesday. The rises were supported by growing confidence that Saudi Arabia and other members of the Organization of the Petroleum Exporting Countries are successfully implementing production cuts.
OPEC’s Secretary General Mohammad Barkindo said on Thursday he’s confident that cartel members and other major oil producers are sticking to the deal to scale back production to boost oil prices. Speaking at the Atlantic Council’s Global Energy Forum in Abu Dhabi, the OPEC head called the commitment from both sides “unparalleled,” according to media reports.
The output pact went into effect this month and will undergo a review in six months. According to BMI Research, initial compliance to the agreement appears to be positive, with current compliance level seen at around 73% based on the firm’s own calculations.
“However, we note the Gulf Cooperation Council countries that have reportedly enacted the bulk of the production cuts are currently in the lowest domestic demand period of the year,” said the firm, hinting production could veer upward when demand increases.
Also helping oil prices on Thursday, data out of China implied the country’s oil demand in November hit the second highest level on record at an average 11.44 million barrels a day. That was 4.1% higher than the same month a year earlier.
Additionally, a weaker dollar following President-elect Donald Trump’s press conference provided an extra boost for energy prices. The ICE Dollar Index DXY, -0.72% was down 0.7% at 101.06, around its lowest level in almost a month.
Oil gains, however, were capped by data out late Wednesday showing a stronger-than-expected increase in U.S. crude and distillate fuel stocks.
For the week ended January 6, U.S. domestic crude stockpiles rose by 4.1 million barrels to 483.11 million barrels, while gasoline stocks rose by 5 million barrels and distillate fuels surged by 8.4 million barrels.
“Imports were the biggest driver behind last week’s crude build,” said S&P Global Platts. Energy Information Administration report showed the U.S. shipped in about 9.1 million barrels per day last week, up 1.9 million barrels per day from the previous week.
The EIA data also showed American oil producers added 176,000 barrels a day in same week, pushing the total to 8.95 million barrels, the highest since mid-April last year.
“With prices steadily rising, it is logical to see more investment being poured back into the upstream operation. But this will also take time,” said Gao Jian, an energy analyst at SCI International.
Nymex reformulated gasoline blendstock for February RBG7, +1.25% — the benchmark gasoline contract — rose 0.5% to $1.60 a gallon, while ICE gasoil for February changed hands at $490.25 a metric ton, up $3.25 from Wednesday’s settlement.
Natural gas for the same month NGG17, +2.51% rose 2.8% to $3.31 per million British thermal units.
