Oil Rises With Dollar’s Descent Countering Demand Worries
Oil declined at the start of the week amid mounting speculation that global demand is weakening. Track the latest oil prices here.
(Bloomberg) -- Oil held gains after recovering from a weak start as declines in the US dollar offset concerns that global demand is under pressure.
West Texas Intermediate traded around $88 a barrel after earlier sinking to $85. Risk sentiment generally firmed across markets on Monday with equity markets climbing in Europe and the American currency weakening sharply as traders bet inflation is near a peak. A weaker greenback tends to benefit assets priced in the currency.
China’s efforts to suppress Covid-19 by curbing activity has weighed on oil prices with their potential of slowing down global demand. Nonetheless, some analysts see a host of bullish factors that could elevate prices heading into the end of the year.
“A lot has turned bullish for oil today - the dollar rally halted on optimism that inflation will continue to cool, Iran nuclear deal talks stalled, which delays the idea that any relief to supplies will be happening anytime soon,” said Ed Moya, senior market analyst at Oanda.
“Food and medical shortages in China raise the prospects that President Xi will soon have to abandon their zero-covid policy. The oil market still remains tight and the latest plunge was overdone,” Moya added.
Crude has sunk by almost a third since June, shedding all the gains since Russia’s invasion of Ukraine. The reversal has come as central banks including the Federal Reserve tighten policy to quell inflation. Still, back-to-back declines in the dollar have helped oil recover from its lows in recent days, while a spate of Chinese crude purchases has spurred some optimism that the real-world market for barrels may have bottomed.
The conclusion of the Biden Administration’s US strategic oil releases, harsher European sanctions that start on Dec. 5 and gas-to-oil switching would also support oil prices, Rebecca Babin, a senior energy trader at CIBC Private Wealth Management said during a Bloomberg MLIV event.
“Looking out for rest of 2022, we see prices moving higher with WTI in the $95-$105 range and Brent $100-$110,” she said.
Chinese authorities have intensified lockdowns and restrictions lately as a key Communist Party meeting looms. Reflecting the challenges, UBS Group AG trimmed its December Brent crude forecast by $15 a barrel. An outbreak at one of China’s top media schools in Beijing should be stamped out “in the shortest period of time,” local government officials said Sunday.
In the US late Friday, the Treasury issued rough compliance guidelines for the proposed cap on Russian oil, focusing on the documentation needed by the private sector to adhere to the program, which is meant to kick in from December as Europe tightens sanctions on flows. Deputy Treasury Secretary Wally Adeyemo said that Moscow would have no choice but to participate.
Iranian nuclear talks were also in focus as the UK, France and Germany said at the weekend that they have “serious doubts” about Tehran’s commitment to a new agreement. Should a pact be agreed it could pave the way for greatly increased flows of Iranian crude to the global market.
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