Oil Dips as Dollar Halts Slide, Short-Term Demand Outlook Weakens

An oil pump jack of Canadian group Vermilion Energy is pictured in Parentis-en-Born, France, October 13, 2017.

SINGAPORE (Reuters) – Oil prices fell on Friday as the U.S. dollar halted its slide and as crude market fundamentals are expected to weaken in the near future.

Brent crude futures were at $70.26 per barrel at 0355 GMT, down 16 cents, or 0.2 percent, from their last close. Brent the previous day hit its highest since December, 2014 at $71.28.

U.S. West Texas Intermediate (WTI) crude futures were at $65.40 a barrel, down 11 cents, or 0.2 percent from their last close. WTI also marked a December-2014 high the day before, at $66.66.

Traders said prices received some support from a firmer dollar. The U.S. currency halted earlier slides on Thursday after U.S. President Donald Trump said he wanted a “strong dollar”. Earlier that day, the greenback had tumbled when U.S. Treasury Secretary Steven Mnuchin said he welcomed a weaker dollar.

Traders often shift money between the dollar and crude futures, depending on their specific outlook. As oil is traded in dollars, swings in the greenback can also impact oil demand as it affects the price of fuel purchases for countries using other currencies domestically.

“The weakening of the U.S. dollar against a basket of global currencies, particularly over H217, has positioned 2018 to lead off with strong levels of oil demand,” said BMI Research.

Beyond currency markets, analysts said the short-term outlook for oil was slightly weaker.

“Supply remains high … for crude and we expect it to increase further,” said Georgi Slavov, head of research at commodities brokerage Marex Spectron.

U.S. oil production is expected to hit 10 million barrels per day (bpd) soon, reaching 9.88 million bpd last week.

Output has grown by more than 17 percent since mid-2016, and is now on par with top exporter Saudi Arabia’s.

Only Russia produces more, averaging 10.98 million bpd in 2017.

Rising U.S. output is threatening to undermine supply restraint led by the Organization of the Petroleum Exporting Countries (OPEC) and Russia aimed at propping up prices.

These cuts, coupled with demand growth, have contributed to a near 60-percent rise in oil prices since mid-2017 as excess crude inventories around the world have been drawn down.

Despite the generally healthy outlook for oil demand, Slavov said there were short-term headwinds due to the upcoming end of the peak demand northern hemisphere winter season.

Many refiners shut down after winter for maintenance, resulting in lower orders for crude, their most important feedstock.

“Demand is starting to weaken as … refining capacity was taken out of the market,” Slavov said.

This is reflecting in oil inventories.

“Global oil stocks built overall in the week ending Jan. 19, as both crude and product stocks saw small builds,” U.S. bank Morgan Stanley said in a note.

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