Oil rose to its highest in nearly a week amid a weaker dollar and signs of improving demand in China and India.
Crude futures gained 2.1% in New York, while the Bloomberg Dollar Spot Index slipped as much as 0.3%, raising the appeal for commodities priced in the currency. Meanwhile, refinery activity in Asia is signaling a bright spot for a demand recovery. One Chinese mega-refiner is snapping up barrels of Middle Eastern crude, while India’s refiners have cranked up processing to meet higher consumption during a festive period.
“A weaker U.S. dollar tends to boost all dollar-denominated commodities and vice versa,” said Carsten Fritsch, an analyst at Commerzbank AG. “This applies in particular to gold, but also to other commodities like crude oil.”
Signs of a demand boost in Asia is helping lift the overall outlook for oil consumption, which continues to struggle to return to normal due to the coronavirus pandemic. At the same time, the structure of the market is pointing to strength ahead. The spread between Brent’s nearest contracts is at its narrowest in six weeks, while the contract’s six-month spread is at the strongest since late July.
Rongsheng Petrochemical Co.’s Singapore unit has purchased at least 7 million barrels in the spot market so far this month for delivery in December and January, according to traders who asked not to be identified because the information is private. The company is buying up crude to feed a trial run operation of its expanded refinery in Zhejiang province this quarter.
“Considering China’s role in the global oil market as largest crude importer, any additional barrels it removes from the rest of the world is an excess barrel missing for the rest of the world,” said Giovanni Staunovo, commodity analyst at UBS Group AG. “Definitely positive if this is a start of a trend.”