Oil wavers in wake of stronger greenback and inflation concerns

Oil fluctuated between small gains and losses amid a strengthening U.S. dollar while investors assessed a mixed global demand picture.

West Texas Intermediate futures traded little changed on Friday and are poised for a three-per-cent decline this week. A firmer dollar reduced the appeal of commodities priced in the currency and a higher-than-expected rise in U.S. March producer prices stoked further concern over inflation.

Meanwhile, India's oil-products demand in March rose to the strongest since late 2019, while Germany reiterated support for a short, strict lockdown in the country. In the U.S., traffic is roaring back in some cities, an indication of stronger demand this summer.

“Inflation is going to take some of the purchasing power from the consumer and that's going to ultimately impact gasoline consumption,” said Bob Yawger at Mizuho Securities. “We've been trading in this range,” as the energy market “looks for clarity on the gasoline situation and the situation surrounding demand.”

U.S. benchmark crude futures are headed for the largest weekly decline in three weeks. While the rollout of vaccines has shown signs of boosting consumption in places like the U.S. and U.K., virus cases continue to spread elsewhere. Japan is set to reimpose lockdowns in Tokyo, Kyoto and Okinawa. Meanwhile, OPEC+ plans to reintroduce more than 2 million barrels a day to the market over the coming months and, further out, there's concern that returning Iranian barrels may also swell supplies.

“While energy demand has remained supported by a powerful recovery in APAC and the U.S., concerns are emerging that a sweeping third wave of infections could delay the recovery,” TD Securities commodity strategists led by Bart Melek said.

Crude in New York has been hemmed into a narrow range around US$60 a barrel since mid-March, with market volatility slumping to the lowest in a month.

With OPEC+ reinstating some of its output cuts, “upside potential for oil prices seems limited,” said Hans van Cleef, a senior oil analyst at ABN Amro. Still, with demand set to recover, “investors see the light at the end of the tunnel, and thus keep some of their long positions.”