Crude oil futures extends decline on stronger dollar, rising COVID-19 cases

Crude oil futures extended declines in midmorning trade in Asia Nov. 15, as investors continued to fret over a stronger dollar amid signs of rising inflation and a recent uptick in COVID-19 cases in Europe and China.

At 10:12 am Singapore time (0212 GMT), the ICE January Brent futures contract was down 49 cents/b (0.60%) from the previous close at $81.68/b, while the NYMEX December light sweet crude contract fell 39 cents/b (0.48%) to $80.40/b.

Bearish pressures continued to dominate sentiment in an event-thinned week of Nov. 14, with investor confidence shaken in recent days by signs of rising inflation in the US. The Biden Administration has hinted at action to tackle surging energy prices in the form of Strategic Petroleum Reserve releases.

"The White House has been debating how to tackle higher inflation, with some officials calling for the strategic reserve to be tapped, or halting US exports," said ANZ Research analysts Brian Martin & Daniel Hynes in a note.

The latest inflation prints could also bring forward the US Federal Reserve's plans to tighten its easy monetary policy further with earlier rate hikes. A majority of traders were now pricing in a rate hike as early as June 2022, compared to earlier expectations of a hike in November 2022, according to the CME FedWatch Tool.

The US dollar has strengthened as a result, with the US dollar index notched near highs not seen since July 2020. As of 0212 GMT, the index was down 0.15% at 94.99.

Meanwhile, the recovery in global mobility has stalled amid an uptick in COVID-19 cases worldwide. China continues to battle its latest outbreak of cases, while several European countries including Germany, Austria and the Netherlands have registered record caseloads in recent days.

Global mobility in the week to Nov. 8 averaged 9.8% below pre-COVID levels in most of the world's top oil users excluding China, according to the latest Google data, up from 8% a week earlier.

"While it appears that the most recent wave [of COVID infections] has peaked, there is a noted uptick which remains a concern... All told, coronavirus remains a risk in the upcoming northern hemisphere flu and holiday travel season," S&P Global Platts Analytics said in a recent note.

IG market strategist Yeap Jun Rong said the outlook for oil prices will remain clouded in the near-term, while not ruling out further declines in the days ahead.

"While OPEC+ sticking to its production plan as set forth previously may provide some form of support for oil prices, some uncertainty may still revolve around the action that might be undertaken by the US to curb elevated crude prices," said Yeap.

"Price action may remain largely muted until there is greater clarity in that regard. The $80/b level may be on watch, as a close below this level may point to a lower low, reinforcing the near-term downtrend and putting the $77.65/b support level in focus next," he added.