Oil futures saw mixed trading on Tuesday, with expectations of weaker energy demand from India, which has seen a surge in COVID-19 cases offset by support from a halt to crude exports from a Libyan port and overall weakness in the U.S. dollar.
The weaker dollar is helping to underpin oil, in addition to rising forecasts for the latest report on U.S. crude inventories to show a decline as the world’s largest consumer of oil, the U.S., reopens its economy, said Sophie Griffiths, a market analyst at Oanda.
Still, risks remain, with the resurgence of COVID in India, the world’s third-largest importer of oil, “tighter lockdown restrictions could dent the near-term demand outlook for oil,” she said in a market update.
The U.S. has averaged 67,175 new coronavirus cases a day in the past week, up 4% from the average two weeks ago, but about 50% of U.S. adults have now received at least one shot of vaccine. Meanwhile, the global case tally almost hit a record of more than 750,000 on Sunday and Monday, according to the Washington Post, as India and Brazil remained hot spots.
West Texas Intermediate crude for May delivery CL.1, -2.52% CLK21, -2.52% fell by 7 cents, or 0.1%, to $63.31 a barrel on the New York Mercantile Exchange, ahead of the contract’s expiration at the end of the session. The most-active June WTI CLM21, -2.63% contract, which will become the front month, lost 7 cents, or 0.1%, to $63.36 a barrel.
Tuesday marks the one-year anniversary of a negative price close for the front-month WTI crude futures contract. On April 20, 2020, the soon-to-expire May WTI crude dropped 306%, or $55.90, to settle at negative $37.63.
“Now a year later, the strength of the market is a reminder of how low prices can cure low prices,” said Phil Flynn, senior market analyst at The Price Futures Group, in daily commentary.
A weaker U.S. dollar “continues to offer support to the commodities complex, with the USD index trading down to its lowest levels since early March,” said Warren Patterson, head of commodities strategy at ING, in a note. “This has helped to push ICE Brent back above $67 a barrel despite concerns over oil demand in certain regions.”
The ICE U.S. Dollar Index DXY, +0.05%, a measure of the currency against a basket of six major rivals, was little changed at 91.08 after trading as low as 90.86 and has fallen about 2.3% this month. A weaker dollar can be supportive for commodities priced in the currency, making them cheaper to users of other currencies.
On Monday, Libya’s National Oil Corporation declared force majeure on crude oil exports from the eastern port of Hariga, with a subsidiary, Agoco, forced to reduce its output due to lack of funding, Patterson noted.
The disruption could see the country’s output fall by 280,000 barrels a day, taking it below 1 million barrels a day for the first time since October, he said, after output staged a strong recovery late last year after the lifting of an oil blockade.
Michael Lynch, president of Strategic Energy & Economic Research, however, said he doesn’t expect the Libyan closure to have a significant effect on oil prices.
“The market is used to occasional interruptions in supply and will presume production will resume within a few days at the latest,” he told MarketWatch.
May natural gas NGK21, -0.55% traded at $2.74 per million British thermal units, down 0.5%, after tacking on 2.6% on Monday.
The Energy Information Administration will release its report Wednesday on U.S. petroleum supplies for the week ended April 16.
IHS Markit forecasts a decline of 2.5 million barrels for crude inventories, along with an increase of 900,000 barrels for gasoline supplies and a fall of 500,000 barrels for distillates.