Oil prices ride on weaker dollar, but US output drags

SINGAPORE — Oil prices rose on Monday, with traders shifting money into crude futures as the dollar weakened, and on concerns that new US sanctions against Iran could be extended to affect crude supplies.

But markets were held back by more signs of growing US production and by worries that import demand in China could slow.

International Brent crude futures were trading at $57.01 per barrel at 0620 GMT, up 20 cents from their last close.

US West Texas Intermediate futures were up 19 cents at $54.02 a barrel.

Traders said the rising prices were a result of cash being poured into crude futures due to a weakening dollar and because of a generally firm outlook thanks to producer efforts to cut output.

Investors raised their net long US crude futures and options positions in the week to Jan. 31 to a record 412,380 lots, the US Commodity Futures Trading Commission said on Friday.

“A weaker US- dollar and OPEC news are supporting the base,” said Jeffrey Halley of futures brokerage OANDA, referring to the Organization of the Petroleum Exporting Countries (OPEC).

The dollar has lost almost 4% in value against a basket of other currencies since early January, making investments into other products, including crude futures, more attractive.

Traders said that tensions between Tehran and Washington were also supporting oil as a recent Iranian ballistic missile test prompted US President Donald J. Trump to impose sanctions on individuals and entities linked to Iran's elite Revolutionary Guards military unit. “The move by the US to impose new restrictions on Iran… does raise the risk of further tensions disrupting supply,” ANZ bank said.

On the supply-side, the OPEC and other producers like Russia are trying to reduce a global fuel supply overhang by cutting their output by a planned average of almost 1.8 million barrels per day ( bpd) in the first half of the year.

But crude was held back by increased US drilling, where 17 oil rigs were added in the week to Feb. 3, bringing the total up to 583, the most since October 2015, Baker Hughes said on Friday.

Further downward pressure could come from a slowdown in Chinese imports. BMI Research said that around 6% of Chinese refining capacity would shut down at some point in the first half of the year, equivalent to around 900,000 bpd of capacity.

A 6.70% reduction to 68.81 million tons between 2016 and 2017 crude import quotas for China's independent refiners will also weigh on the overall import demand, said BMI. —