Oil prices rise, but stronger dollar lurks in the background
London (Oct 23) Prospects of new stimulus measures from the European Central Bank lifted oil prices Friday, but a stronger U.S. dollar and concerns over surplus could limit gains, analysts said.
ECB President Mario Draghi said Thursday the bank is “open to a whole new menu of monetary-policy instruments” to help jumpstart the region’s economy, which has been grappling with ultra-low inflation and a lukewarm recovery.
Light, sweet crude futures for delivery in December CLZ5, +0.40% rose 16 cents, or 0.4%, to $45.54 a barrel on the New York Mercantile Exchange. December Brent crude LCOZ5, +0.64% on London’s ICE Futures exchange rose 34 cents, or 0.7%, to $48.42 a barrel.
There is “a renewed sense of optimism in the oil market,” said Barnabas Chen, an energy analyst at OCBC.
The ECB’s decision to hold interest rates steady also bolstered market expectations the U.S. Federal Reserve will do the same in its December policy meeting, Chen said. Keeping interest rates at their current low level will give the U.S. dollar DXY, -0.02% little reason to strengthen, translating to cheaper oil for foreign traders.
“It is hard to predict whether the U.S. dollar will continue to climb or whether the oil market will react to the signal, but we do see a stronger U.S. dollar as a bearish risk factor,” said Tim Evans, an energy analyst at Citi Futures.
According to the WSJ Dollar Index BUXX, -0.10% the dollar fell 0.2% against 16 other currencies, after rising around 1.4% overnight.
Persistent oversupply presents another downside to the market, especially after the U.S. government reported a larger-than-expected inventory buildup of 8 million barrels last week, Evans said.
Market watchers took note of data from the eurozone released Friday. Activity in the private sector picked up in October, suggesting the euro area’s modest recovery has yet to be weakened by slowdowns in China and other large developing economies.
Nymex reformulated gasoline blendstock for November RBX5, +0.45% — the benchmark gasoline contract — rose 1 cent, or 0.4%, to $1.312 a gallon.
Source: MarketWatch
