Crude oil futures finished higher in a volatile session as a weaker dollar and rising costs for alternative fuels backstopped markets despite near-term growth risks.
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NYMEX October WTI settled up 27 cents at $70.56/b and ICE November Brent climbed 44 cents to $74.36/b.
Crude prices appeared to closely pace the US dollar during the session, sliding into negative territory in early US trading amid a dollar rally, only to move higher as the dollar moved lower later in the day.
The ICE US Dollar Index fell to 93.179 in afternoon trading, down from a Sept. 20 close of 93.276.
WTI touched a session low of $69.67/b midmorning, just 16 cents above its 50-day moving average. The move likely prompted a technical rebound that sent crude higher midday, analysts said.
Dollar volatility comes as the US Federal Reserve's Open Market Committee began a two-day meeting that is widely expected to end in the central bank pursuing a more hawkish monetary policy.
"Expectations are for the Fed to make a formal taper announcement in November, possibly starting in December at a pace of $15 billion per month," OANDA senior market analyst Ed Moya said, adding, "the Fed has constantly been stating that tapering does not start the countdown for rate hikes and they will try to make that clear again."
NYMEX October RBOB settled 1 cent lower at $2.1052/gal while October ULSD climbed 1.48 cents to $2.1738/gal.
In addition to the broader sputtering economic recovery, recent default risks with Chinese real estate companies, such as Evergrande, could create domino effects and reverberate more throughout the global economy. Evergrande is the world's most indebted developer with more than $300 billion in debt.
"Oil prices are trying to bounce back after being under pressure because of the concerns about China's economy due to the possible default of China's biggest property developer," Price Futures Group analyst Phil Flynn said in a note. "Those concerns had people running for haven protection in the dollar put downward pressure on a lot of commodities."
Analysts said that oil demand is supported by a surge in prices of alternative energy sources such as natural gas, particularly in Europe, where UK gas futures surged to record highs. The region is set to face energy issues because of insufficient stockpiles, a situation that may worsen in the coming months as they enter the Northern Hemisphere winter.
Meanwhile, oil infrastructure in the Gulf of Mexico continues its recovery. The US Bureau of Safety and Environmental Enforcement reported Sept. 21 that around 320,909 b/d or 16.64% of the Gulf's oil production remains offline, while about 566.67 MMcf/d or 25.42% of gas production also remain shut.
But full production recovery in the Gulf looks unlikely near term. Comprehensive damage of its WD-143 facilities means that Shell will only be able to resume full production capacity in the Gulf in the first quarter of 2022. Shell stated that 60% of its production capacity in the Gulf has been restored, S&P Global Platts reported Sept. 20.