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OIL FUTURES: Crude higher amid softer US dollar, OPEC policy uncertainty

Highlights

US dollar down on soft US CPI, retail sales

OPEC+ ministerial meeting may be shifted online

  • Author
  • Ernest Puey
  • Editor
  • Nur syahirah Abdullah
  • Commodity
  • Crude Oil Refined Products Upstream

Crude oil futures were higher in midafternoon Asian trade May 16, as investors capitalized on a softer dollar to swoop up crude futures contracts after the US printed weaker-than-anticipated economic data.

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At 2:41 pm Singapore time (0641 GMT), the ICE July Brent futures contract was up 41 cents/b (0.5%) from the previous close at $83.16/b, while the NYMEX June light sweet crude contract rose 41 cents/b (0.52%) to $79.04/b.

The ICE US Dollar Index was at 104.155 as of 0559 GMT May 16, down 0.05% from the previous close and 1.21% lower on the week.

A weaker dollar results in dollar-denominated assets like oil futures becoming less expensive to investors holding foreign currencies, thus boosting demand for these assets.

The decline in the dollar followed a smaller-than-expected rise in consumer prices in the US overnight, which in turn bolstered hopes that the Federal Reserve may cut interest rates as soon as September.

"Yesterday's satisfactory US inflation data keeps the perspective of major central bank rate cuts wide open and supports the continuation of the reflation trade," said Ipek Ozkardeskaya, senior analyst, Swissquote Bank. "In this reflation context, US crude could reclaim an advance to $80/b."

Notably, retail sales, an indicator of consumer health in the US, fell short of expectations, further fueling optimism of an impending policy pivot by the Fed.

"The narrative on US exceptionalism continues to show signs of softening, and this is giving markets the perfect excuse to increase Fed cut expectations and to sell the dollar," said OCBC Treasury Research's foreign exchange strategist Christopher Wong May 16.

Nevertheless, analysts warned that the latest inflation data only offered a brief snapshot of global price trends, with further data required to affirm a dollar downtrend.

"We will likely need some help from falls in US labor markets [to anchor disinflation]," said SPI Asset Management's Managing Partner, Stephen Innes.

On supply, the OPEC+ ministerial meeting scheduled for June 1 may be moved to virtual talks, sources told S&P Global Commodity Insights.

If moved online, it would mark the second time in a row that the OPEC+ alliance has skipped an in-person meeting, after November's gathering was delayed and then held virtually following a dispute over African members' quotas.

The group is meeting to decide future production levels, with current quotas set to expire at end-June.

"OPEC faces a difficult decision as it meets to review it supply policy," ANZ Research commodity strategists said, highlighting the fall in crude prices amid easing geopolitical risks and tepid demand.

"The market will not only be watching what the group does with the voluntary cut currently in place, but also its decisions around quotas for 2025," the strategists said.