Oil prices rose on Thursday despite a strong inventory build-up as a weak US dollar helped to support prices.
West Texas Intermediate, the key US gauge, climbed back to its fourth-month high and was up 0.64 per cent trading at $42.17 per barrel at 2.21pm UAE time. Brent, the most widely-used benchmark, was also up 0.65 per cent at $44.58 per barrel.
The US dollar’s value has steadily declined amid a surge in coronavirus cases. The currency’s value is down 8 per cent against a basket of currencies after its highs earlier this year.
The price of crude is inversely related to the US dollar: when the dollar is strong, oil prices – which are priced in the currency –remain weak. The dollar is currently at its lowest level since 2018, with futures betting against the currency at their highest in more than two years.
The coronavirus pandemic has hit the world’s largest economy the hardest. The US accounts for around a quarter of the world's 15.2 million cases recorded as of Thursday, according to data from the Johns Hopkins University coronavirus tracker. The pandemic has also wiped out gains made in job creation since the financial crisis. With unemployment rate in the US now at 11.1 per cent, according to the Labour Department, gloomy economic data has weighed on the dollar, denting its performance.
The dollar’s slide has also helped revive WTI, which recovered steadily after plunging below zero in April at the height of the demand crunch triggered by the coronavirus pandemic.
A bearish dollar also helped US oil counter gloomy inventory data, which brought down WTI from its four-month highs yesterday.
The US Energy Information Administration reported oil inventories increased by nearly 5 million barrels last week as movement restrictions across many US states lowered oil demand.
Earlier, the industry-funded American Petroleum Institute reported an increase in US crude stockpiles by 7.5 million barrels, the biggest increase in nearly two months. Analysts had anticipated a decline of 2.1 million barrels.
Deliveries to Cushing, the physical delivery point of US crude, also rose by 716,000 barrels last week, while gasoline inventories declined for the third consecutive week, API said.
"Aside from increasing talk of pockets of demand weakness around the globe, the newest batch of weekly EIA data did also have a somewhat bearish tone to it,” JBC Energy said in a note on Thursday.
The consultancy also cautioned about a potential implied surge in supply in the US based on the inventory data, which could drag prices lower.
"After having averaged below 10.5 million barrels per day for nine consecutive weeks, the 1.7m bpd leap higher is a first warning sign that the narrative of only a very shallow rebound due to shut-in barrels returning to market still cannot be taken for granted,” JBC Energy said.
