Oil eases as demand worries offset weaker dollar, big storage draw
Oil eased on Thursday as the market focused more on concerns that delays to vaccine rollouts and fresh travel curbs could depress demand than the impact of a weaker dollar and a big U.S. crude inventory drawdown.
Brent futures for March delivery fell 28 cents, or 0.5%, to settle at $55.53 a barrel, while U.S. West Texas Intermediate (WTI) crude ended 51 cents, or 1.0%, lower at $52.34.
With the Brent March contract expiring on Friday, the premium of the Brent front-month over the second month rose to its highest level since February 2020 for a fourth day in a row.
“We … view the strong curve as indicative of tightening balances in which upcoming Saudi production cuts are more than offsetting increased demand concerns related to the coronavirus,” said Jim Ritterbusch, president of Ritterbusch and Associates in Galena, Illinois.
Ritterbusch was referring to Saudi Arabia’s pledge to voluntarily cut output by 1 million barrels per day (bpd) in February and March as part of OPEC+ deal. OPEC+ includes the Organization of the Petroleum Exporting Countries (OPEC) plus others like Russia.
The U.S. 3-2-1 crack spread, a measure of the profit margin for refining crude into gasoline and distillate, closed at its highest since May 2020, while the gasoline crack spread ended at its highest close since June 2020.
Traders noted the crack spreads were rising with U.S. gasoline trading at their highest since February 2020.
Oil prices were supported earlier by Wednesday’s data that showed a huge 10 million-barrel drawdown in U.S. crude inventories last week, which analysts said was because of a pickup in U.S. crude exports and a drop in imports. [EIA/S]
“The draw was a big relief for inventories, especially as it followed a week of builds, putting traders at ease that supply doesn’t overwhelm demand for the time being,” Rystad Energy’s Louise Dickson said.
In addition, the U.S. dollar index flipped into negative territory after earlier gains, which also helped support oil prices. Buyers using other currencies pay less for dollar-priced oil when the greenback falls. [USD/]
Demand concerns, however, weighed on sentiment and prevented oil prices from holding those earlier gains.
The U.S. economy contracted at its deepest pace since World War Two in 2020 as the COVID-19 pandemic depressed consumer spending and business investment, pushing millions of Americans out of work and into poverty.
A separate report showed 847,000 more people likely filed U.S. jobless claims last week, strengthening views of persistent labor market weakness.
Stricter vaccine checks by the European Union and delivery hold-ups from AstraZeneca Plc and Pfizer Inc have slowed the rollout of shots.
In China, the world’s second-largest oil consumer, a surge in coronavirus cases has led to travel restrictions ahead of the Lunar New Year, normally the busiest travel season of the year.