Brent oil dropped in Asia as the dollar strengthened, giving up some of the gains posted at the end of the worst week since October.
Futures in London slipped 1% on Monday as a rising dollar reduced the appeal of commodities priced in the currency. Despite rising 2% on Friday, crude still capped a large weekly loss amid a combination of factors including a softening physical market and the unwinding of long positions. Concerns about near-term demand due to the uneven pandemic recovery also continue to linger.
Saudi Arabia, meanwhile, saw another assault on its energy facilities. While the offensive by Iran-backed Houthi rebels on an Aramco refinery on Friday had no impact on oil supplies, it’s the latest in a series of attacks on the kingdom.
Despite the weekly plunge, there’s confidence in the long-term outlook and a return to higher prices. Goldman Sachs Group Inc. said the recent sell-off was transient and that the rebalancing would continue with vaccinations driving higher mobility. The market will be keenly watching the OPEC+ meeting next week for any change to its output policy in May, especially after the slide in oil and comments from the International Energy Agency that supply is plentiful.
“Oil is likely to hover around current levels, at least until OPEC+’s next move,” said Vandana Hari, founder of Vanda Insights in Singapore. “Demand worries are back. Europe is bracing for a third wave and several U.S. states are seeing an uptick in infections after they relaxed restrictions.”
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The prompt timespread for Brent is still in a bullish backwardation — where near-dated prices are more expensive than later-dated ones — although the gap narrowed over the course of last week. The spread was at 13 cents a barrel on Monday, compared with 67 cents at the start of the month.
Iran’s Supreme Leader Ayatollah Ali Khamenei, meanwhile, said his country was in no hurry to revive the nuclear deal, although he reiterated that Tehran was still prepared to return to the original terms of the agreement once the U.S. has lifted sanctions. Despite the penalties, Iranian crude exports appear to be rising, with China boosting its purchases recently.
— With assistance by Rob Verdonck – Bloomberg
