OIL FUTURES: Crude rangebound on uncertain outlook before Trump ascension

Crude oil futures were rangebound in mid-afternoon Asian trade Jan. 7 while the market anticipates a climbing US dollar ahead of Trump's re-ascension to presidency to exert downward pressure on oil prices.

At 3:00 pm Singapore time (0700 GMT), the ICE March Brent futures contract was down 4 cents/b (0.05%) from the previous close at $76.26/b, while the NYMEX February light sweet crude contract was down 12 cents/b (0.16%) from the previous close at $73.44/b.

"Oil prices seem to give away some of the gains registered last week as traders brace for [US] dollar strength just ahead of Trump taking the White House on Jan. 20," Priyanka Sachdeva, Senior Market Analyst at Phillip Nova said.

The ICE US Dollar Index (DXY) was at 103.250 as of 0510 GMT Jan. 7, up 0.09% from the previous week's close. A stronger dollar results in dollar-denominated assets like oil futures becoming more expensive to investors holding foreign currencies, thus dampening demand for these assets.

Further lending to the market's confidence in a strengthening greenback. Analysts also found that the 110.000 target remains within reach for the DXY in coming weeks.

Weakness in the oil complex is also attributed to a technical correction, where investors are now reacting to softer economic data that undermined previously held optimism.

"Additionally, the dollar's strength is catching up with market sentiment and appears to be trimming the current gains in oil prices. The current upswing allows oil bulls to book profits especially when demand signals from both China and the US, the top two consumers, aren't as satisfactory as originally anticipated," Sachdeva from Phillip Nova added.

Global demand outlook for 2025 remains tepid, analysts said.

"While there has been some tightening in the physical market, fundamentals through 2025 are still set to be comfortable, which should cap the upside. We still see oil prices trending lower through the year," Warren Patterson, head of commodities strategy, and Ewa Manthey, commodities strategist at ING, said.

Uncertainty over potential tariffs imposition under Trump 2.0 also weighed on market sentiment.

"While the Washington Post initially confirmed some market views that tariffs may be less aggressive than feared, Donald Trump was quick to dismiss it as 'fake news.' His rhetoric around tariffs may remain tough, with potential negotiations down the line, but banking on less aggressive tariffs at this stage could seem premature," Yeap Jun Rong, market strategist at IG said.

In a bid to drown the noise, the market is keeping a lookout for macroeconomic data to inform a directional cue for oil futures trading.

Monthly data for US job openings, and the Non-Manufacturing Institute for Supply Management (ISM) Services Purchasing Manager's Index (PMI), are of particular interest to investors, both of which are due for release later in the global day Jan. 7.

"[The] numbers will matter for the [Federal Reserve's interest rate cut] expectations. The US economic growth last year remained robust, the jobs market started cooling but the cool down was not as sharp as the Fed predicted ... As such, the potentially excessive Fed cuts of last year now fuel the expectation that the Fed will pause for a few months," Ipek Ozkardeskaya, Senior Analyst at Swissquote Bank said.

"Activity on Fed funds futures suggests that the next Fed cut will not arrive before May. A sufficiently soft figures this week could scale back a part of that hawkishness, pull the US dollar lower and allow the others to gain field," Ozkardeskaya added.

Dubai crude

Dubai crude swaps and intermonth spreads were mixed in mid-afternoon Asian trading Jan. 7 from the previous close.

The March Dubai swap was pegged at $74.98/b at 2:00 pm Singapore time (0600 GMT), up by 1 cent/b (0.01%) from the previous Asian market close.

The February-March Dubai swap intermonth spread was pegged at 68 cents/b, narrower by 2 cents/b over the same period, and the March-April Dubai swap intermonth spread was pegged at 57 cents/b, unchanged over the same period.

The March Brent-Dubai exchange of futures for swaps was pegged at $1.32/b, wider by 10 cents/b over the same period.