Weakening dollar restores oil price’s climb

(Bloomberg) --Oil pushed higher 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 above $48 a barrel, though liquidity was thin in the period between Christmas and New Year. A dip in the dollar boosted the appeal of commodities such as oil that are priced in the currency. Crude was also aided by broader market strength, with equities nearing record levels following U.S. President Donald Trump’s signing of a $900 billion virus-relief package.

The coronavirus continues to surge unabated, however. The U.K. government is enlisting the armed forces to help with testing as hospitalizations exceeded the peak recorded last spring. The virus is also making a comeback in Asia, with Thailand tightening restrictions and South Korea’s daily death toll rising to a record.

Crude’s vaccine-driven rally has faltered in the past 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 has said the nation would support a further gradual increase in production in February.

Oil prices are “looking several months ahead instead of at the short-term challenges,” said Ole Hansen, head of commodities strategy at Saxo Bank. Stimulus measures are “supporting the reflation trade, which is also part of the growing appetite for commodities.”

Prices:

• West Texas Intermediate for February delivery rose 1.2% to $48.18 a barrel as of 8:28 a.m. New York time
• Brent for February settlement also climbed 1.2% to trade at $51.44

Trading volumes for both benchmarks were below their average levels over the previous 10 sessions

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 ramp up oil output may undermine the alliance’s efforts to raise production.