Oil prices rose on Thursday amid bullish signals from the weak dollar and Chinese import data. However, renewed concerns about global oil demand continue to keep prices under pressure due to rising coronavirus cases in Europe and new lockdowns in China.
Brent crude oil futures rose 36 cents, or 0.6%, to settle at $56.42 a barrel. West Texas Intermediate (WTI) ended 66 cents, or 1.3%, higher at $53.57.
The US dollar index fell dovishly after the US central bank said it would not raise interest rates anytime soon. The weak dollar makes dollar-denominated oil less expensive for foreign currency holders.
While the dollar weakened, the oil and stock markets gained momentum with the strengthening of energy values. World stock indices climbed to record levels, and US bond yields surged on Thursday as investors focused on Biden’s outbreak relief offer.
Announcing the biggest daily jump in new COVID-19 cases for more than 10 months, China’s total crude oil imports rose 7.3% in 2020, according to customs data. There were record entries in the second and third quarters as refineries expanded their operations and lower prices encouraged stocking.
Governments in Europe have announced tighter and longer-lasting coronavirus lockdowns. Unfortunately, vaccines are not expected to have a significant and rapid impact that will meet expectations in the short period of the next few months.
It is alarming for the market to see COVID-19 infections escalate in China after a long period of time, and coupled with ongoing tight lockdowns in Europe could impact oil demand in the first quarter much more than previously anticipated.
The Organization of Petroleum Exporting Countries did not change its forecast on world demand, saying that oil use will increase by 5.9 million barrels per day to 95.91 million barrels this year, following a record contraction of 9.75 million barrels last year due to the pandemic.
Oil producers are facing challenges in balancing supply and demand, as factors such as the speed and response of COVID-19 vaccines blur the picture. For example, while Saudi Arabia cuts oil supplies to some Asian buyers, Russia plans to increase production this year.
The rationalization of prices is delayed, as Saudi voluntary production cuts are slightly more than reasonable in market conditions.
Brent’s six-month backwardation, whereby contracts for later delivery are cheaper, fell to its lowest since Jan. 5, indicating bullish sentiment easing.