Oil slips from 8-month high with rally grinding to a halt

Oil fell from an eight-month high as the dollar recovered, while disparities in demand set the stage for OPEC+’s key policy meeting next week.

Futures in New York dropped 1.6 per cent, with the dollar erasing earlier declines to trade higher. After stellar gains so far this month, both West Texas Intermediate and Brent crude futures settled technically overbought on Wednesday, a sign that a possible reversal had been on the cards.

Oil has jumped around 27 per cent this month as signs that COVID-19 vaccines are imminent boosted expectations for a swift recovery in energy demand next year. However, while there are indications that Asian consumption remains healthy, Europe is still lagging. On Wednesday, Germany extended a partial lockdown to curb the spread of coronavirus for at least three more weeks.

“Great news on the vaccines, but it will be months until they are widely available,” said Spencer Welch, vice-president of oil markets and downstream consulting at IHS Markit Ltd. “The oil market still has plenty of time left at sub-$50 a barrel, including most of 2021.”

Prices

  • West Texas Intermediate for January delivery declined 1.6 per cent to $44.97 a barrel at 9:27 a.m. London time
  • Brent for the same month fell 1.7 per cent to $47.81

Crude’s rapid price gains this month pose a headache for OPEC+ as it considers whether to postpone a planned increase in output, as they lend weight to arguments from some members demanding to pump more. In the latest sign of rifts within the group, Iraq’s deputy leader said that OPEC should take members’ economic and political conditions into account when deciding production quotas rather than adopting a “one-size-fits-all” approach.

In what could be a harbinger of better U.S.-Chinese relations, President Xi Jinping broke his silence on Joe Biden’s election win. The Chinese leader sent the U.S. president-elect a message that he hopes to “manage differences” and focus on cooperation between the world’s two largest economies. Any easing of tensions would likely support economic growth and aid energy demand.

U.S. crude inventories fell by 754,000 barrels last week, Energy Information Administration data showed on Wednesday. Supplies at the storage hub in Cushing, Okla., also shrank. But there were some bearish data points: gasoline stockpiles rose by more than 2 million barrels and oil production ticked higher.

© 2020 Bloomberg L.P.

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