Oil edged higher in Asian trading with support from a weakening dollar as investors weighed a worsening short-term demand outlook against an eventual rebound as COVID-19 vaccines are rolled out.
Futures in New York rose toward $48 a barrel after falling 1.3 percent Monday. Southern California is set to extend a lockdown amid a surge in coronavirus cases, while German authorities are concerned the slow pace of the nation’s vaccine rollout could prolong the economic damage from the pandemic.
A dip in the dollar boosted the appeal of commodities like oil that are priced in the currency. Asian stocks, meanwhile, were mainly higher, tracking gains in US equities that were buoyed after President Donald Trump signed a $900 billion stimulus package into law.
Crude’s vaccine-driven rally has faltered in the last couple of weeks on signs it may have gotten ahead of the recovery in energy demand. The OPEC+ alliance is also set to add another 500,000 barrels a day of output to the market from January, while Russia’s deputy prime minister said last week the nation would support a further gradual increase in production in February.
“Renewed concern over the virus will limit the upside for oil in the near term and noise around Russia supposedly favoring adding more output in February won’t help either,” said Warren Patterson, head of commodities strategy at ING Groep NV in Singapore. Price moves will continue to be driven by COVID-19 developments, he said.
OPEC+ will meet next week to decide on production levels for February, with traders looking out for indications of changing sentiment among its members. Over the longer term, Iranian plans to hike oil output may undermine the alliance’s efforts to raise production while avoiding flooding the market.
Brent’s three-month timespread was 15 cents a barrel in contango, a bearish market structure where near-dated prices are cheaper than later-dated ones. The spread was as much as 27 cents in backwardation earlier this month, with the change reflecting the worsening market sentiment.