Oil prices hold steady as dollar weakens
Singapore/Melbourne — Oil prices were steady on Tuesday, erasing gains earlier in the session, as rising coronavirus cases dampened the outlook for demand and countered optimism over more US stimulus.
Efforts to stimulate the US economy’s recovery from the coronavirus crisis had raised hopes for stronger oil demand.
Brent crude futures climbed 2c, or 0.1%, to $43.43 a barrel at 4.23am GMT, while US West Texas Intermediate (WTI) crude futures fell 7c, or 0.2%, to $41.53 a barrel. Both benchmarks rose as much as 0.5% earlier in the session.
“A weaker US dollar is supporting both base and precious metals, but oil traders appear focused on the economic signal that the lower dollar is flashing — demand destruction,” said Michael McCarthy, chief market strategist at CMC Markets.
A weakening of the dollar typically helps improve demand as that makes crude cheaper for global buyers.
Gold prices surged to record highs this week, powered by investors seeking cover from Covid-19’s global economic toll, as reflected in faltering stocks and US-China trade tensions.
The US dollar dropped to its lowest in nearly two years against a basket of six other currencies on the back of a surge in US coronavirus cases. Florida and California have both overtaken the previous epicentre, New York.
But losses could be capped by fresh government aid packages that could help fuel demand.
“Oil prices will continue to draw support from the Fed’s dovish policy,” AxiCorp market strategist Stephen Innes said in a note.
US Senate Republicans on Monday proposed a $1-trillion coronavirus aid package worked out with the White House to revitalise the economy with expanded unemployment benefits for millions due to expire this week, though Democrats urged more support.
Further aiding the stimulus, the US Federal Reserve’s policy-setting panel meets on Tuesday and Wednesday, when it is expected to reiterate it will keep interest rates near zero for years to come.
“For oil prices to break out higher, there must be a significant flattening of the US Sunbelt Covid-19 case count curve at a minimum,” Innes said.
Traders will be watching for US inventory data due from the American Petroleum Institute industry group later on Tuesday and the government on Wednesday. Refined products stockpiles are expected to have declined last week, while crude oil stockpiles are expected to have held steady, five analysts polled by Reuters estimated.
On the downside for fuel demand, Europe’s largest low-cost airline, Ryanair, on Monday cut its annual passenger target by a quarter after bookings were hit in recent days, and warned a second wave of Covid-19 infections could lower that further.
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