Oil Drops Toward $52 Amid Demand Pessimism and Firmer Dollar

(Bloomberg) -- Oil fell toward $52 a barrel on a steadily deteriorating short-term demand outlook and a gain in the dollar that reduced the appeal of commodities priced in the currency.

Futures in New York declined 1.2%. President Joe Biden warned of roughly another 100,000 American deaths over the next month, while data showed New York traffic thinned from a month earlier. A series of lockdowns in China in the past few weeks is testing the nation’s hard-won reputation for controlling Covid-19. A gauge of the dollar rose for the first time this week.

There were signs, however, that the demand picture in Asia may not be as bad as previously thought. Physical prices in the spot market have firmed this week amid a flurry of buying by Chinese, Indian and Thai refiners.

Crude is still trading near the highest level in almost a year as investors pile into commodities. There’s also been a boost to energy use from a frigid winter and investors are hoping for a big dose of stimulus spending from the Biden administration. Saudi Arabia’s unilateral output cuts have eased concerns the market would be over-supplied, helping to reshape the oil futures curve.

“We have short-term demand concerns with enhanced lockdowns taking place globally, such as those in China and Malaysia,” said Suvro Sarkar, an energy analyst at DBS Bank Ltd. in Singapore. But that’s being balanced by hopes for U.S. stimulus, vaccines being rolled out and OPEC+’s supply discipline, meaning Brent should continue to trade near $55 a barrel in the near future, he said.

The prompt timespreads for Brent and WTI are 12 cents and 7 cents a barrel, respectively, in backwardation. That’s a bullish market structure where near-dated prices are more expensive than later-dated ones.

President Biden, meanwhile, is poised to suspend the sale of oil and gas leases on U.S. federal land, which accounts for about 10% of U.S. supplies, according to four people familiar with the matter. The moratorium is set to be unveiled along with a raft of other climate policies next week, according to the people, who asked for anonymity to discuss plans not yet public.

The administration’s initial steps -- including the suspension of the leases, a focus on fiscal spending and a likely delay in lifting sanctions on Iran --- may help tighten the oil market this year and next, Goldman Sachs Group Inc. said in a note. A speedier vaccine rollout could also boost jet fuel demand, it said.