Crude falls as stronger dollar outweighs bullish EIA data

0203 GMT: Crude oil futures were lower during the mid-morning trade in Asia May 27 as a stronger US dollar dampened demand, outweighing the bullish sentiment generated by the data from the Energy Information Administration, or EIA.

At 10:25 am Singapore time (0225 GMT), the ICE Brent July contract was down 27 cents/b (0.39%) from the previous settle at $68.60/b, while the July NYMEX light sweet crude contract was down 31 cents/b (0.47%) at $65.90/b.

The weakness in the market seen in the morning May 27 came on the back of a stronger dollar, supported by rising treasury yields amid signs that some US Federal Reserve officials are contemplating starting a conversation about the tapering of the US Central Bank's $120 billion asset purchase program.

The June contract for ICE US Dollar Index was trading at 90.05, up 0.47% from the previous settle. A stronger US dollar makes dollar-denominated assets such as oil more expensive for buyers holding foreign currency, and weighs on demand for such assets.

Dollar strength negated the impact of the bullish EIA data May 26, which showed US commercial crude inventories falling by 1.66 million barrels in the week ended May 21 to 484.35 million barrels. The crude inventory draw was larger than the draw of 439,000 barrels reported by the American Petroleum Institute a day earlier.

Fundamentals seemed favorable in downstream products markets as well, with US gasoline and distillate inventories falling by 1.75 million barrels and 3.01 million barrels, respectively, to 232.48 million barrels and 129.08 million barrels in the week ended May 21.

According to the EIA, implied gasoline demand climbed 3% to 9.48 million b/d in the week ended May 21. The rise correlated with Apple mobility data, which showed US driving activity rose 3% to 146.5% of baseline levels, marking the highest level since the index was launched in January 2020.

"As the US economy continues to reopen, along with the start of the driving season, gasoline demand should continue to edge higher," ING analysts said.

Implied distillate demand, meanwhile, edged up 400,000 b/d to an 11-week high of 4.46 million b/d.

The market now awaits resolution from the negotiations over the Joint Comprehensive Plan of Action that are ongoing in Vienna. A deal could see sanctions on Iran's oil sector being lifted, which analysts say could see the country's oil production rise to pre-sanction levels of about 3.9 million b/d by next year.

"Depending on what and how soon is agreed upon over Iran sanction relief oil prices could wildly swing in any direction. A complete removal of sanctions would send prices sharply lower, but that still seems very unlikely," Edward Moya, senior market analyst at OANDA, said in a May 27 note.