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Crude slides more than 2% amid stronger dollar, Chinese lockdowns

Highlights

Dollar rallies to one-month high

Biden presents $1.9 trillion stimulus plan

Chinese lockdowns threaten demand forecasts

New York — Oil futures settled lower Jan. 15 on the back of a stronger dollar and a renewed focus on demand growth concerns amid the spread of lockdowns across China.

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NYMEX February WTI settled down $1.21 at $52.36/b and ICE March Brent moved $1.32 lower to $55.10/b.

Crude prices, which were already trending lower overnight, came under additional pressure in US trading as the dollar rallied after President-elect Joe Biden revealed a $1.9 trillion dollar stimulus plan late Jan. 14.

The ICE US dollar index was holding at around 90.75 in afternoon trading, on pace to close at the highest since Dec. 11.

"Oil needed a big catalyst to keep the recent rally going so energy traders didn't need much to head for the sidelines," OANDA senior market analyst Edward Moya said in a note. "Stimulus uncertainty should keep commodities under pressure as risk aversion flows will boost the greenback."

NYMEX February RBOB settled 2.55 cents lower at $1.5284/gal and February ULSD declined 2.65 cents to $1.5929/gal.

Analysts said they expect stimulus package to boost oil demand in the short term but questioned whether there was enough bipartisan support in the US Congress to pass the bill.

"Looking at previous stimulus packages over the last few months, some caution is needed. Packages have gone back and forward between looking like being approved and not. There is scope to change," according to Sucden UK's head of research, Geordie Wilkes.

New coronavirus variants discovered in the UK, Brazil and South Africa with increased transmission have been lifting the number of COVID-19 cases rapidly, posing a significant threat to near-term demand.

The crude structure has been steadily trending weaker in recent sessions, with the front end of the Brent curve falling back into contango for the first time since Jan. 4.

Chinese authorities have placed tens of millions of citizens under lockdown this week in a bid to stem a resurgence of COVID-19 cases in several cities. As the economic recovery in the US and Europe has stagnated amid a second wave pandemic, demand growth in Asia has been a significant focus of oil markets.

S&P Global Platts Analytics forecast Chinese oil consumption to be at 15.4 million b/d in 2021, up 3.6% year on year. However, a significant pandemic resurgence in the country could derail these forecasts.

China's crude imports fell to a 27-month low of 9.096 million b/d, or 38.47 million mt in December, General Administration of Customs data released Jan. 14 showed.

The 15.4% year-on-year fall in December crude imports was sharper than expected, with analysts pointing to a shortage of crude import quotas and destocking activity as the key reasons for the decline, Platts previously reported.