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OIL FUTURES: Crude lacks direction amid weaker dollar, reports of rising Chinese energy purchases


US dollar retreats from one-year highs

China reportedly ramping up energy purchases

Market eyes OPEC+ meeting for next direction

Crude futures settled mixed Sept. 30 on the back of a weaker dollar and reports that China is looking to ramp up energy purchases ahead of winter.

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NYMEX November WTI settled at $75.03/b, up 20 cents, and ICE November Brent fell 12 cents to settle at $78.52/b.

An overnight US dollar rally added headwinds to oil prices, but crude pulled off session lows in early morning trading as the dollar rally faltered. The ICE US Dollar Index fell to 94.199 in afternoon trading from a session-high 94.503. The index had closed Sept. 29 at a one-year high of 94.338.

Oil futures then rose sharply amid media reports stating the Chinese government had ordered the country's top state-owned energy companies to acquire feedstock at all costs. WTI surged more than $2 following the report, but later gave back much of these gains in a late-session selloff to settle just above even on the day.

"Our gauge of energy supply risk is surging, reflecting growing competition between Asian and European nations to stockpile energy supplies ahead of winter," TD Securities commodity strategist Daniel Ghali said in a note. "This supports a tight supply-demand outlook that is fueling upside momentum in Brent crude and heating oil, which can be exacerbated by up to 1 million b/d of incremental winter demand due to natural gas switching for crude and fuel oils."

NYMEX October ULSD settled 3.42 cents higher at $2.3417/gal and October RBOB climbed 2.43 cents to $2.2536/gal.

A seasonal uptrend in diesel demand outlooks, coupled with upside risks from a tight global supply disposition, has seen New York Harbor heating oil cracks push to one-year highs. The ICE NYH ULSD crack versus Brent climbed to $18.16/b Sept. 29, the highest close since March 30, 2020.

The next key pivot point for the market could be the outcome of the OPEC+ meeting, scheduled for Oct. 4. The alliance has come under pressure lately for capping monthly production increases at 400,000 b/d — an increase deemed insufficient by some observers given the rise in global demand appetite.

"OPEC+ might be eventually enticed into adopting a steeper ramp-up of its supply restoration, considering the tightening market conditions and the surge in prices. However, such a surprise decision next week could trigger a knee-jerk reaction of unwinding some of the recent gains, depending on the scale and pace of any additional supply increase beyond the slated 400,000 b/d," Han Tan, chief market analyst at Exinity, told S&P Global Platts Sept. 30.

"If China is happily paying any price for energy, this could intensify the energy crunch in Europe," OANDA senior market analyst Ed Moya said. "OPEC+ has resisted caving in to President Biden's demands [for higher production] over the summer, but this time is different. The energy crunch could trigger massive volatility and dampen global growth prospects, so OPEC+ should consider a tweak next week."