OIL FUTURES: Crude rises on lower UST yields and further falling US dollar

Crude oil futures were higher in midafternoon Asian trade Feb. 6 as a fall in US treasury bond yields resulted in a weakening US dollar.

At 3:31 pm Singapore time (0731 GMT), the ICE April Brent futures contract was up 27 cents/b (0.36%) from the previous close at $74.88/b, while the NYMEX March light sweet crude contract was up 31 cents/b (0.44%) from the previous close at $71.34/b.

"A mild correction in the US dollar seems to support prices on Thursday [Feb. 6] morning," Priyanka Sachdeva, senior market analyst at Phillip Nova said.

The ICE US Dollar Index was at 107.615 as of 0705 GMT Feb. 6, down 1.16% from the start of the week at 108.877 at the Feb. 3 close. The greenback, having softened across the week, results in dollar-denominated assets like oil futures becoming less expensive to investors holding foreign currencies, thus boosting demand for these assets.

However, gains in crude oil futures prices could be capped as global demand-side concerns arising from the ongoing trade disputes between China and the US continue to weigh on the complex, analysts said.

"Oil markets that are already struggling with fears of 'higher for longer' [interest] rates denting demand, appear to have been caught in the crossfire of 'trade wars'," Phillip Nova's Sachdeva added.

The US 10-year treasury bond yield notably fell below 4.5% on Feb. 5 to 4.43%, down from 4.52% the previous close, the US Treasury Department data showed Feb. 6. The 10-year yield sustained above 4.5% levels since Dec. 18, 2024.

The US two-year treasury bond yield also fell, albeit in a smaller degree -- 4 basis points for the two-year yield compared with 9 basis points for the 10-year yield -- to 4.17% on Feb. 5, down from 4.21% the previous close.

This points toward a softening yield curve, which hints at disinflationary pressures while the global demand outlook remains in contention.

"It did feel like it was coming. Mutual funds data has consistently shown buying of duration pressure since the turn of the year, and the inflation data in the guise of [Consumer Price Index], [Producer Price Index] and [Personal Consumption Expenditures] have just about played ball over consecutive weeks, at least in the guise of tamer month-over-month rates," ING analysts Padhraic Garvey, CFA, Michiel Tukker and Benjamin Schroeder said.

Still, a sharp fall in US treasury bond yields led to a weak dollar, analysts said, thereby adding to bullish runs for crude oil futures prices as these dollar-denominated assets become less expensive to investors.

"On Friday [Feb. 7], the US jobs data should give a clearer short-term direction. A softer-than-expected report could lead to further dollar weakness in the immediate future," Ipek Ozkardeskaya, Swissquote Bank's senior analyst said.

Nonetheless, weak demand signals permeated the complex as US crude stocks moved higher in the week ended Jan. 31 amid seasonally weak refinery demand, US Energy Information Administration data showed late Feb. 5.

Commercial crude stocks climbed 8.66 million barrels to 423.79 million barrels in the week ended Jan. 31, EIA data showed. The build put inventories 3.9% behind the five-year average, from a deficit of 5.7% the week prior, but left them still 3.64 million barrels below year-ago levels.

The almost 9 million-barrel buildup suggests weak demand, coupled with a potential oversupply in the domestic US market, which could exert downward pressure on prices, analysts said.

"The outlook for oil remains negative, price rallies should see resistance within the $73-$75/b range, including two Fibonacci retracements and the 200-[daily moving average]," Ozkardeskaya added.

The crude oil market remains volatile owing to the unique interplay between Trump's energy and trade policies, and supply dynamics.

"Market participants are closely monitoring developments in US-China trade negotiations, the enforcement of sanctions on Iran and OPEC+'s production strategies to assess future price trajectories," Sachdeva said.

Dubai crude

Dubai crude swaps and intermonth spreads were lower in mid-afternoon Asian trading Feb. 6 from the previous close.

The April Dubai swap was pegged at $73.94/b at 2:00 pm Singapore time (0600 GMT), down by 91 cents /b (1.22%) from the previous Asian market close.

The March-April Dubai swap intermonth spread was pegged at 81 cents/b, narrower by 9 cents/b over the same period, and the April-May Dubai swap intermonth spread was pegged at 69 cents/b, narrower by 6 cents/b over the same period.

The April Brent-Dubai exchange of futures for swaps was pegged at 91 cents/b, narrower by 21 cents/b over the same period.