Oil rises on weaker dollar amid demand fears

Singapore — Oil prices rose on Friday on the back of a weaker US dollar, though demand concerns stemming from rising coronavirus cases and escalating US-China tensions kept a cap on prices.

The dollar slid to 22-month lows against a basket of currencies. A weaker dollar usually spurs buying of commodities priced in the greenback, such as oil, because they become cheaper for holders of other currencies.

Brent crude rose 21c, or 0.5%, to $43.52 a barrel by 4.46am GMT, and US West Texas Intermediate (WTI) crude rose 12c, or 0.3%, to $41.19.

“Crude prices are attempting to stabilise as expectations still remain high that Congress will be successful in delivering another pandemic relief package” for the US, said Edward Moya, senior market analyst at Oanda in New York.

“Yesterday’s US economic data showed that the economic recovery is struggling and pretty much guarantees more federal aid is coming.”

The number of Americans filing for unemployment benefits unexpectedly rose to 1.416-million last week for the first time in nearly four months, suggesting US economic recovery is stalling amid a resurgence in Covid-19 cases.

The US economic outlook has darkened in the past month amid renewed lockdowns in some states from surging coronavirus cases, according to economists in a Reuters poll who warned of a high risk the job recovery under way reverses by year-end.

The US on Thursday recorded more than 1,000 deaths from Covid-19, marking the third straight day the nation passed that grim milestone as the pandemic escalates in its southern and western states. Globally, more than 15-million have been infected and more than 620,000 have died.

While the rise in infections has fanned fears of renewed government lockdowns, worries that oil demand could be hit have been worsened by tensions between the US and China — the world’s top two oil consumers.

China ordered the US to close its consulate in the city of Chengdu on Friday, in a tit-for-tat response to being told to shut its consulate in Houston earlier this week, as relations between the two world powers deteriorated further.

Relations between Washington and Beijing have deteriorated sharply this year over a range of issues, from trade and technology to the coronavirus, China’s territorial claims in the South China Sea and its clampdown on Hong Kong.

In China, congestion at east coast oil ports is adding to costs for shippers and importers even as fuel demand stalls.

Barclays Commodities Research has said oil prices could see a correction in the near term if a recovery in fuel demand slows further, especially in the US.

The bank lowered its oil market surplus forecast for 2020 to an average 2.5-million barrels per day (bpd), from 3.5-million bpd previously. 

Reuters