Oil prices rise as U.S. Dollars Falls

Oil prices rise as U.S. Dollars Falls

The price of crude oil climbed on Tuesday, reversing overnight losses, as investors moved into risk assets and avoided the safe-haven U.S. dollar whose value has recently depreciated.

Reuters reports that Brent crude futures climbed 47 cents, or 1%, to $45.75 a barrel at 0635 GMT.

The U.S. West Texas Intermediate (WTI) crude futures rose 43 cents, or 1%, to $43.04 a barrel.

The two benchmark contracts fell around 1% on Monday due to concerns over oil oversupply, with global demand stuck below pre-COVID levels.

The U.S dollar was last down 0.04% at 92.146 against a basket of currencies, after hitting its lowest since May 2018 in the wake of the U.S. Federal Reserve’s policy shift on inflation announced last week.

Louis Crous, the chief investment officer at BetaShares, an Australian exchange-traded funds provider said: “It (the policy shift) really cements the fact that you’re looking at negative real rates for the U.S. which will not be great for the U.S. dollar. That’s good for commodities,”

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The weakening U.S. dollar makes oil and other commodities priced in dollars more attractive to global buyers.

Jeffrey Halley, a senior market analyst at OANDA revealed that strong Chinese manufacturing data also lifted oil prices.

The Caixin/Markit Manufacturing Purchasing Managers’ Index(PMI) showed China’s factory activity expanded at the fastest clip in nearly a decade in August, bolstered by the first increase in new export orders this year.

Halley said: “Expectations of higher consumption, powered by a China recovery, lifted sentiment and saw both Brent crude and WTI track higher in Asia,”

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“Both contracts are now close to monthly highs and are poised to shake off the range-trading malaise of the past two months,” he added.

But investors were also assessing the stalled recovery in fuel demand as countries continue to battle the coronavirus pandemic with rolling COVID-19 lockdowns, analysts said.

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“This has created plenty of uncertainty about whether demand for transportation fuels will ever return to normal,” ANZ Research said in a note.

Ahead of the release of U.S. stockpile data from the American Petroleum Institute industry group, a Reuters poll found analysts expect U.S. crude stocks fell by about 2 million barrels in the week to Aug. 28.

About six analysts polled by Reuters estimated Gasoline inventories are seen falling by 3.6 million barrels, while distillate inventories, which include diesel and heating oil, are expected to drop by 1.5 million barrels.

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