Weaker dollar lifts oil futures, but soaring US output weighs
SINGAPORE – Oil prices edged up on Tuesday on a weaker dollar, but crude continued to be weighed down by surging US production and uncertainty over whether an OPEC-led supply cut is big enough to rebalance the market.
Prices for front-month Brent crude futures, the international benchmark for oil, had risen 15 cents from their last close to $50.90 per barrel by 0120 GMT.
In the United States, West Texas Intermediate (WTI) crude futures were up 19 cents at $47.92 a barrel.
Traders said that crude futures were receiving some support from a weak dollar.
The greenback has lost 2.9 percent in value against a basket of other leading currencies .DXY since its March peak on doubts over US President Donald Trump’s policy making abilities.
When the dollar weakens, many futures traders pull out money from foreign exchange markets and put it into commodities futures like gold or crude futures instead.
A weaker dollar also makes oil imports cheaper for countries using other currencies, potentially spurring demand.
While there was some support for crude from financial markets, physical fundamentals remained weak, especially due to soaring US output that is undermining efforts lead by Organization of the Petroleum Exporting Countries (OPEC) to cut production in order to rein in a global fuel supply overhang and prop up prices.
“We now forecast US crude oil production to reach a multi-decade high by December, within sights of the all-time high reached in 1970,” Barclays bank said in a note to clients.
US crude oil production has already risen 8.3 percent since mid-2016 to 9.13 million barrels per day (bpd). Output briefly reached 9.7 million bpd in April 2015, it highest since May 1971.
Soaring output and brimming inventories have made US WTI crude much cheaper than its international peer, Brent, which is receiving support above $50 per barrel by the OPEC-led production cut.
As a result, record amounts of US crude oil have found their way to Asia and other destinations this year, and more is expected to be shipped out as traders take advantage of arbitrage opportunities by sending out excess US crude into regions where it can find buyers. -Reuters