Crude oil futures fall on stronger US dollar, stagflation concerns

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Crude oil futures were down in mid-morning Asian trade June 10, facing headwinds from a stronger US dollar and stagflation concerns, but sentiment remained supported from steady demand during peak driving season.

At 10:42 am Singapore time (0242 GMT), the ICE August Brent futures contract was down 95 cents/b (0.77%) from the previous close at $122.12/b, while the NYMEX July light sweet crude contract fell 91 cents/b (0.75%) at $120.60/b.

The ICE US Dollar Index was trading at 103.25 at 10:34 am Singapore time (0234 GMT) June 10, up from 103.218 June 9.

A stronger dollar results in dollar-denominated assets like oil futures becoming less attractive to investors holding foreign currencies.

“After shaking off the China lockdown, for the most part, the oil complex has accepted China’s stop and start economics; crude oil is taking a bit of a hit due to the stronger US dollar as stagflation concerns knock down broader markets again,” SPI Asset Management’s managing partner Stephen Innes said in a June 10 note.

China has implemented temporary lockdown measures in the Minhang region of Shanghai in order to conduct mass testing for COVID-19 on June 11.

Nonetheless, sentiment held firm as demand during this peak driving season is expected to buoy the complex, shrugging aside short-term concerns emerging from China’s lockdown.

“Travel around major cities has been improving in recent week as restrictions eased amid lower COVID-19 cases,” Brian Martin and Daniel Hynes from ANZ Research said in a June 10 note.

With regards to demand recovery amid the peak driving season, Martin and Hynes said: “This has prompted Chinese refiners to boost output. Imports of crude have also been stronger, with May shipments up 11.9% year on year to 45.8 million mt.”

Dubai crude swaps and intermonth spreads were lower during mid-morning trade June 10 from the previous close.

The August Dubai swap was pegged at $110.82/b at 10 am Singapore time (0200 GMT), down 0.84 cents/b (0.75%) from the June 9 Asian market close.

The July-August Dubai swap intermonth spread was pegged at $3.03/b at 10 am, down 3 cents/b over the same period, and the August-September intermonth spread was pegged at $2.27/b, down 10 cents/b.

The August Brent-Dubai EFS was pegged at $11.21/b, down 24 cents/b.