Oil buoyed as dollar weakens

Price action

• West Texas Intermediate crude for January delivery
  CL.1,
  +1.14%
   
  CLF23,
  +1.14%
  rose 91 cents, or 1.2%, to $76.10 a barrel on the New York Mercantile Exchange. February WTI
  CL00,
  +0.53%
   
  CLG23,
  +0.53%,
  the most actively traded contract, was up 36 cents, or 0.5%, at $75.74 a barrel.

• February Brent crude
  BRN00,
  +0.34%
   
  BRNG23,
  +0.34%,
  the global benchmark, was up 17 cents, or 0.2%, to $79.97 a barrel on ICE Futures Europe.

• Back on Nymex, January gasoline
  RBF23,
  +0.23%
  rose 0.1% to $2.179 a gallon, while January heating oil
  HOF23,
  +0.81%
  was up 0.5% at $3.07 a gallon.

• January natural gas
  NGF23,
  -3.38%
  was down 2.6% at $5.697, extending a decline after a drop of more than 11% in Monday’s session.

Market drivers

A weaker U.S. dollar was providing support for crude, analysts said. A weaker dollar can be a positive for commodities priced in the unit, making them less expensive to users of other currencies.

The U.S. dollar fell versus major rivals, with the Japanese yen
USDJPY,
-3.12%
jumping after the Bank of Japan widened the band around the yield on the country’s 10-year government bond
TMBMKJP-10Y,
0.417%,
allowing it to trade 50 basis points on either side of 0% versus its previous band of 25 basis points. The ICE U.S. Dollar Index
DXY,
-0.64%,
a measure of the currency against a basket of six major rivals, was down 0.7%.

See: Yen surges as Bank of Japan surprises by letting benchmark rate rise

Crude is also finding underlying support from the Biden administration’s plan, announced Friday, to buy 3 million barrels of crude in February to replenish the Strategic Petroleum Reserve.

“The U.S. government had already announced in October that the purchases would happen once the WTI price was in or below a corridor of $67-72 per barrel. Though the front-month WTI forward contract is somewhat above this level just now, forward contracts with a maturity date in a year’s time or later are already within or even below this range,” said Carsten Fritsch, commodity analyst at Commerzbank, in a note. “The expected reserve purchases are likely to prevent any further slide of the WTI price, for example in the event of persistent demand concerns.”

China’s relaxation of its COVID curbs, meanwhile, is seen as a potential long-term positive for crude, though a surge in infections may be limiting upside, analysts said.

“After an extended bout of long liquidation, and with positioning much more balanced, bullish sentiment is creeping back into oil traders’ purview, primarily based on China’s reversal of its zero-COVID policy,” said Stephen Innes, managing director of SPI Asset Management, in emailed comments. “And despite all the economic fear and recession hype, oil continues to find buyers on dips, proving itself as one of the most needful commodities in the world.

“But punchy speculative gains continue to be stifled by demand implication over the worrisome 2nd and 3rd wave Omicron case projections that are weighing on broader China’s near-term economic forecasts. Not to mention year-end liquidity concerns are keeping many traders grounded,” he said.

U.S. natural-gas futures, meanwhile, continued to sink after Monday’s plunge, as near-term weather forecasts predict warmer-than-average temperatures spreading from the West to the Midwest.