Crude futures lower in Asia trade on stronger dollar, fragile demand outlook

Singapore — 0305 GMT: Crude oil futures were lower in mid-morning trade in Asia Aug. 20 after the US dollar strengthened, a drawdown in US commercial crude inventories proved smaller than analysts had expected and the global demand outlook remained fragile.

At 11:05 am Singapore time (0305 GMT), ICE Brent October crude futures were down 40 cents/b (0.88%) from the previous settle at $44.97/b, while the NYMEX September light sweet crude contract was down 44 cents/b (1.02%) at $42.49/b.

"The US dollar rebounded yesterday [Aug. 19] after five consecutive sessions of losses and is continuing to firm this morning. The dollar's continuing tumble has been a vital prop for crude prices in recent weeks," Vandana Hari, Founder and CEO of oil consultancy firm Vanda Insights, told S&P Global Platts Aug. 20.

The US Federal Reserve released the minutes of its July Federal Open Market Committee meeting on Aug. 19 that highlighted the COVID-19 pandemic "posted considerable risks to the economic outlook over the medium term." However, its reluctance to provide further clarity on rate guidance and more accommodative monetary policy stances pushed the US dollar higher in the US trading session.

At 0305 GMT, the US dollar index stood at 93.023, up 0.15% from 93.025 at the close. There is strong inverse correlation between the US dollar and crude prices, with a weaker US dollar more supportive for the global crude complex.

Meanwhile, US commercial crude inventories fell 1.63 million barrels to 512.45 million barrels and gasoline inventories fell 3.32 million barrels to 243.76 million barrels in the week ended Aug. 14, US Energy Information Administration data released Aug. 19 showed.

It was the fourth consecutive week of drawdown in US commercial crude stocks, but fell short of the American Petroleum Institute's expectations of a 4.26 million-barrel draw.

Total product supplied, a proxy for demand, also fell 2.21 million b/d to 17.16 million b/d in the week, to the lowest level since late May.

"The crude and gasoline stock draws in the latest EIA data are price-supportive but a weekly slump of over 2 million b/d in US demand sends a worrying signal to the market," Hari said. "It is hard to say which one the market is focusing on at any given time. The two put together make for a neutral to slightly bearish picture," she added.

OPEC+ concluded its Joint Ministerial Monitoring Committee meeting Aug. 19 with the Saudi Arabian and Russian co-chairs urging counterparts to remain disciplined in adhering to their committed production cuts. The 23-country OPEC+ coalition exceeded its production quota by 357,000 b/d over May-July despite overcompliance by Saudi Arabia, Platts reported earlier.

Members that violated their production quotas in May, June and July are required to make additional cuts beyond their already committed cuts in August and September to make up for their excess production. Notably, Iraq has pledged to make 400,000 b/d in extra cuts for August and September in a plan endorsed by Saudi Arabia and its Gulf allies.

The next JMMC meeting is scheduled for Sept. 17, with a delegate level technical advisory committee due to meet the day before.