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Oil futures nudged higher Friday, on track for a fourth straight weekly gain, as traders remained upbeat over demand prospects and commodities enjoyed a lift from a falling U.S. dollar.
West Texas Intermediate crude for February delivery
CL00,
CLG22,
rose 5 cents, or 0.1%, to $82.17 a barrel on the New York Mercantile Exchange, leaving the U.S. benchmark on track for a 4.1% weekly gain. March Brent crude
BRN00,
BRNH22,
the global benchmark, was up 21 cents, or 0.2%, at $84.68 a barrel on ICE Futures Europe, headed for a 3.6% weekly advance.
“On the fundamental side, despite the COVID-19 variant, demand remains strong as OPEC remains in no rush to flood the market. Technically, a solid base around the $79 -$80 dollar range has been established which will likely result in a move to $85 before moving back to the mid-$80 trading range,” said Peter Cardillo, chief market economist at Spartan Capital Securities, in a note.
The spread of the omicron variant of the virus that causes COVID-19 sparked a sharp selloff in crude in November and December, but oil has more than recouped those losses as fears of widespread lockdowns and hits to demand failed to materialize. Meanwhile, the Organization of the Petroleum Exporting Countries and their allies, known as OPEC+, have stuck to a plan to incrementally boost production, resisting pressure from the Biden administration and others to speed up increases. Also, some OPEC members have failed to meet boosted quotas.
Some pressure on crude prices on Friday could stem from a potential release of crude from China’s strategic reserves. Reuters reported that China will release oil near the Lunar New Year, which falls on Feb. 1., as part of an effort by global consumers coordinated by the U.S.
A weaker U.S. dollar has also buoyed crude, analysts said. The ICE U.S. Dollar Index
DXY,
a measure of the currency against a basket of six major rivals, was on track for a 0.9% weekly fall and is down around 1.2% in the new year. A weaker dollar can be supportive to commodities priced in the unit, making them less expensive to users of other currencies.
Read: Why a falling dollar signals ‘markets are in wonderland’ over inflation and Fed
Some analysts, however, see scope for oil prices to take a breather near current levels.
“While the outlook for the global oil market has improved in recent weeks with a smaller surplus now expected in 2022, the developments have likely not been bullish enough to push futures to new multiyear highs just yet,” said Tom Essaye, founder of Sevens Report Research, in a note.
“To be clear, the long-term uptrend in oil remains very much intact right now, but oil has become near-term overbought,” he said. “As such we expect the market to consolidate some here after WTI has rallied more than 25% since the Dec. 20 lows.”
