Oil rose to its highest in nearly a week amid a weaker dollar and expectations for supply declines in U.S. inventories. Crude futures gained 2.1% in New York, while the Bloomberg Dollar Spot Index slipped as much as 0.3%, raising the appeal for commodities priced in the currency. Futures clung to gains in after-market trading following the American Petroleum Institute’s report of a 5.42 million barrel decline in U.S. crude stockpiles last week and draws in both gasoline and distillate inventories.
Prices were also supported by increased refinery activity in Asia, signaling strengthening demand. One Chinese mega-refiner is snapping up barrels of Middle Eastern crude, while India’s refiners have cranked up processing to meet higher consumption during a festive period.
“A weaker U.S. dollar tends to boost all dollar-denominated commodities and vice versa,” said Carsten Fritsch, an analyst at Commerzbank AG. “This applies in particular to gold, but also to other commodities like crude oil.”
Signs of a demand boost in Asia is helping lift the overall outlook for oil consumption, which continues to struggle to return to normal due to the coronavirus pandemic. At the same time, the structure of the market is pointing to strength ahead. The spread between Brent’s nearest contracts is at its narrowest in six weeks, while the contract’s six-month spread is at the strongest since late July.
“Considering China’s role in the global oil market as largest crude importer, any additional barrels it removes from the rest of the world is an excess barrel missing for the rest of the world,” said Giovanni Staunovo, commodity analyst at UBS Group AG. “Definitely positive if this is a start of a trend.”
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