Brent crude settles flat, US oil up on short covering

By
Reuters
An employee pumps petrol into a car at a petrol station in Hanoi, Vietnam, December 20, 2016. REUTERS/Kham/Files
 

NEW YORK: Oil markets were mixed on Thursday with Brent flat even though the dollar slid, while US crude rose as investors covered short positions.

“This is kind of an upside-down Thursday,” Dominick Chirichella — the co-president at the New York-based Energy Management Institute — said. He said he was puzzled at why a weaker dollar did not boost Brent futures prices.

“The rise we’ve seen in US crude has been more of a short covering rally rather than a return to the uptrend,” he added.

Global benchmark Brent slipped 3 cents to settle at $64.33 a barrel. US West Texas Intermediate (WTI) crude gained 74 cents (1.2 percent) to settle at $61.34.

Those price moves cut the premium of Brent over WTI to its lowest in six months.

“If the Brent-WTI spread narrows, the big incentive to export US crude oil starts to narrow,” Chirichella said, noting he did not expect US prices to hold at these higher levels for long since “all of the fundamental snapshots ... over the past couple of weeks have been bearish.”

The dollar slid to its lowest since it touched a three-year low in late January. A weaker dollar often boosts prices for oil and other dollar-denominated commodities, making them cheaper for holders of other currencies.

“I’m surprised that (Brent) oil prices are falling today given the weaker US dollar. Currently, the direction of the dollar is having a bigger impact on oil prices than fundamentals,” Rob Thummel — a portfolio manager at energy investment manager Tortoise Energy — said.

Oil had climbed on Wednesday and early on Thursday after Saudi Energy Minister Khalid al-Falih said OPEC hopes to keep limiting crude output to leave the market tight.

“Khalid al-Falih gave his strongest hint yet that exiting the current supply agreement is unlikely to be on the agenda this year,” said Tamas Varga of oil broker PVM.

The Organization of the Petroleum Exporting Countries (OPEC) and other producers, including Russia, have agreed to cut output by 1.8 million barrels per day (BPD) through the end of 2018.

But surging US production is offsetting OPEC’s efforts to curb supplies.

US crude output hit a record 10.27 million barrels per day last week, the Energy Information Administration (EIA) said on Wednesday, making it a bigger producer than Saudi Arabia.

The EIA expects US production to top 11 million bpd in late 2018.