Dollar Helps Propel Oil to Three-Year High as Supplies Tighten

Oil just got an extra tailwind from a weakening dollar as this month is shaping up to be the best January for black gold in 12 years.

That’s because when the greenback is losing value, investors tend to flock to commodities as a store of value, and this is coming on the back of a record streak of declines in American spare supplies of crude.

Futures climbed 1 percent on Friday in New York to their highest since December 2014, pushing this month’s gain to 9.5 percent. The last time oil rose more than that for any month of the year was in April 2016. Meanwhile, the dollar was poised for its longest stretch of weekly declines since 2010. Crude stowed in U.S. tanks and terminals has never been in more demand, as evidenced by the unprecedented 10-week drawdown on American inventories.

Oil traders are reacting to “U.S. dollar movements,” Eric Nuttall, a portfolio manager with Ninepoint Partners LP in Toronto, said in a phone interview. “I’m encouraged that oil is better reflecting underlying fundamentals and an under-supplied market relative to last year, where it seemed to ignore those improving fundamentals for much of the year.”

As stockpiles dwindle in the U.S., the Organization of Petroleum Exporting Countries, Russia and other major producers have pressed on with supply caps amid robust demand.

JPMorgan Chase & Co. expects London-traded crude futures to approach the $78 level by the beginning of the second quarter. Meanwhile, hedge funds raised their net-bullish Brent bets to a record, according to weekly ICE Futures Europe data.

“We continue to get direction from the dollar,” Gene McGillian, a market research manager at Tradition Energy in Stamford, Connecticut, said by telephone. “The long-term effect of production cuts and increased demand are still the main drivers of the rebalance of the market and higher prices.”

West Texas Intermediate for March delivery added 63 cents to settle at $66.14 a barrel on the New York Mercantile Exchange. Total volume traded was about 12 percent above the 100-day average.

Brent for March settlement added 10 cents to end the session at $70.52 on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a premium of $4.38 to WTI, the smallest since early September.

The Bloomberg Dollar Spot Index, a gauge of the currency against 10 major peers, has declined about 1.6 percent this week.

“A lot of people looking at the oil market focus 90 percent of their time on supply,” Pavel Molchanov, an energy research analyst at Raymond James in Houston, said by telephone. “Demand tends to be overlooked sometimes and it’s actually worth emphasizing how strong oil demand has been.”

Oil-market news:

The U.S. oil rig count rose by 12 to 759, the largest addition since March, data from Baker Hughes showed on Friday. Gasoline futures rose 2.23 cents to $1.9377 a gallon, the highest since August. The February contract’s premium to March jumped to 1.14 cents amid concern that refinery and pipeline maintenance will tighten supplies The crude market will remain in backwardation throughout this year with prices trading between $60 and $75 a barrel, Mercuria Energy CEO Marco Dunand said during an interview in Davos. Total SA “is making a big”’ oil discovery in the Gulf of Mexico, CEO Patrick Pouyanne said at dinner with U.S. President Donald Trump in Davos on Thursday.