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Crude oil futures edge lower on weak product demand, stronger dollar

Singapore — 0238 GMT: Crude oil futures edged lower during mid-morning trade in Asia Jan. 14 as any bullishness due to a draw in US crude inventories was outweighed by indications of weak fundamentals in downstream oil markets and a stronger US dollar.

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At 10:38 am Singapore time (0238 GMT), the ICE Brent March contract was down 11 cents/b (0.20%) from the Jan. 13 settle at $55.95/b, while the February NYMEX light sweet crude contract was down 10 cents/b (0.19%) at $52.81/b. The markers had fallen 0.92% and 0.56% respectively Jan. 13.

US commercial crude inventories fell 3.25 million barrels to 482.21 million barrels in the week ended Jan. 8, Energy Information Administration released Jan. 13 showed. Analysts surveyed by S&P Global Platts had been expecting a slightly larger 3.8 million-barrel draw.

However the crude draw did not translate to higher prices as market participants remained concerned about weakness in the downstream oil product markets.

US gasoline inventories rose 4.4 million barrels to 245.48 million barrels in the week to Jan. 8, while distillate inventories rose 4.79 million barrels to 163.21 million barrels, the EIA data showed.

Implied gasoline demand edged up 90,000 b/d in the week to 7.53 million b/d, according to the EIA, correlating with Apple mobility data that showed a 0.2% increase in US driving activity, but remained 12% below the five-year average, weighed down by pandemic restrictions across the country.

ANZ analysts in a Jan. 14 note said the EIA data suggested demand for fuels in the US remained weak, and indicators from other major regions such as Europe also pointed to weak demand.

"Demand in Europe is subdued and road traffic in the UK is down 42%, while global air traffic is showing little sign of a meaningful rebound in flight numbers," the ANZ analysts said.

At 10:38 am, the NYMEX February RBOB contract was trading 0.32 cents/gal (0.21%) lower than the Jan. 13 settle at $1.5456/gal, while the NYMEX February ULSD contract was down 0.31 cents/gal (0.19%) at $1.5958/gal.

Meanwhile, the US dollar strengthened, adding to downward pressure on oil prices.

"The US dollar had notably resumed its climb in the Wednesday session despite US Treasury yields easing slightly on the back of strong demand noted for long-dated Treasury bonds and Fed comments," Pan Jingyi, senior market strategist at IG, said in a Jan. 14 note.

Despite the dip in crude prices, analysts remained bullish, as US President-elect Joe Biden was expected to unveil a new coronavirus stimulus plan later Jan. 14 and the results of a Johnson & Johnson vaccine trial were also expected.

"Optimism is brewing for J&J's COVID-19 vaccine and that could tentatively keep WTI crude supported around the low-$50s. Unless the dollar rebound accelerates, it will be hard to make an argument for lower oil prices," Edward Moya, senior market analyst at OANDA, said in a Jan. 14 note.