US Dollar Sluggish, Oil Prices Soar in Asia. Oil prices extended gains in Asian trade. This is due to a weaker US dollar. At the same time, tight supplies offset concerns about a recession and the prospect of a widespread COVID-19 lockdown in China that could dampen demand for fuel.
Brent crude futures for September delivery rose 2.54 dollars, or 2.5 percent, to trade at 103.70 dollars a barrel at 0648 GMT, after gaining 2.1 percent.
U.S. West Texas Intermediate (WTI) crude futures for August delivery jumped 2.31 dollars, or 2.4 percent, to trade at 99.90 dollars a barrel, after rising 1.9 percent in the previous session.
The US dollar pulled back from multi-year highs on Monday, supporting prices for commodities ranging from gold to oil. A weaker dollar makes dollar-denominated commodities more affordable for holders of other currencies.
Last week, Brent and WTI posted their biggest weekly declines in about a month on fears a recession will hit oil demand. Mass COVID testing continued in parts of China this week, raising oil demand concerns in the world’s second-largest oil consumer.
However, oil supplies remain tight, supporting prices. As expected, US President Joe Biden’s trip to Saudi Arabia failed to result in a promise from top producer OPEC to increase oil supplies.
Biden wants Gulf oil producers to increase output to help tame oil prices and lower inflation.
Amos Hochstein, the State Department’s senior adviser on energy security, said on CBS Face the Nation that the trip would result in oil producers taking “a few more steps” in terms of supply although he did not say which country or countries would increase production.
“While there has been no immediate promise for an increase in oil production, the US has reportedly indicated an expected gradual increase in supply,” Baden Moore, head of commodity research at the National Australian Bank, said in a note.
“The reduced release of SPR (strategic oil reserves) from November could offset this additional supply even if not greater than around 1 million BPD.”
The next meeting of the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia, collectively called OPEC+, on August 3 will be closely watched as their existing production pact expires in September.
Global markets this week focused on the resumption of the flow of Russian gas to Europe via the Nord Stream 1 pipeline which is scheduled to end maintenance on July 21. Governments, markets, and companies fear the shutdown could be extended because of the war in Ukraine.
“Brent crude will find support at the end of the week if Russia doesn’t return gas to Germany after Nord Stream 1 maintenance,” said OANDA senior analyst Jeffrey Halley.
Losing that gas would hit Germany, the world’s fourth-largest economy, hard and increase the threat of a recession.
Separately, US Treasury Secretary Janet Yellen said she was holding productive meetings on Russia’s proposed oil price cap with several countries on the sidelines of a meeting of the Group of 20 chief economies’ finance chiefs.
Yellen raised the idea of price caps during a virtual meeting on July 5 with Chinese Vice Premier Liu He, China’s commerce ministry said last week.
The ministry said setting a cap on Russia’s oil price was a “very complicated matter” and a prerequisite for solving the Ukraine crisis was to promote peace talks among the parties concerned.