WTI crude nears $50 as oil becomes an inflation hedge

(Bloomberg) --Oil rose for a fourth day -- aided by a falling dollar -- before OPEC+ meets to decide whether it can keep lifting output as a surging virus threatens the global energy demand recovery.

Futures in New York jumped as much as 2.7% to approach $50 a barrel. A further decline in the dollar is boosting the appeal of commodities that are priced in the currency, while as investors return to their desks at the start of the year, crude has emerged as a favored trade to hedge against a rise in inflation. The world’s biggest commodity indexes will begin their annual rebalancing this week too, a move that should spur extra buying of oil futures.

The Organization of Petroleum Exporting Countries and its allies are returning 500,000 barrels a day to the market this month and meet on Monday to decide on production levels for February. The outlook for the first half is very mixed and there are still many downside risks to juggle, OPEC Secretary-General Mohammad Barkindo said at a meeting on Sunday.

While optimism dominated the market on Monday, the recovery in demand remains threatened by potential new lockdowns to curb the spread of Covid-19. Tougher measures will likely be needed in England, while Japan is considering imposing another state of emergency. But with the rollout of a vaccine getting underway, investors are now plowing money back into commodities markets, including oil.

“With the dollar factoring in on the gain, it’s not just oil but funds are flowing into commodities across the board,” said Vandana Hari, the founder of Vanda Insights in Singapore. “The OPEC+ decision could go either way -- a rollover of cuts or a 500,000 barrels a day hike -- but the bulls may take the latter in their stride.”

Prices:

• West Texas Intermediate for February delivery rose 0.8% to $48.92 a barrel at 9:54 a.m. in London
• Brent for March settlement added 1.3% to $52.47

The oil demand situation is better in China, however, where a cold winter and power shortages are prompting factories to rush to install diesel generators. A gauge of Chinese manufacturing strength for December missed estimates, while a similar Indian measure increased slightly from the previous month.

At a meeting on Sunday, several countries including Saudi Arabia sounded cautious about raising output in February, delegates said. Russia has said OPEC+, which slashed output last year, can add another 500,000 barrels a day next month, while Riyadh has publicly kept its views under wraps.

“For the first of these monthly meetings the balance of risks to the oil demand recovery has changed,” said Harry Tchilinguirian, oil strategist at BNP Paribas. “The OPEC+ producer group may have to re-schedule and delay further tapering of voluntary supply cuts in view of latest Covid developments.”

Other oil-market news:

• Chinese oil majors may be next in line for delisting in the U.S. after the New York Stock Exchange said last week it would remove the Asian nation’s three biggest telecom companies.
• Iraq has selected a Chinese company for a multibillion dollar oil-supply deal, as the Arab nation seeks funds to bolster an economy reeling from the Coronavirus-triggered collapse in energy prices.
• Iranian energy companies have agreed deals worth $1.2 billion to raise the nation’s crude output, state-run National Iranian Oil Co. said.