Yahoo Finance Oil hits one-week high amid US dollar's drop and IEA comments
Oil futures reached a one-week high, as the US dollar declined and the International Energy Agency (IEA) announced a “big chunk” of US shale is profitable at current oil prices.
Brent (BZ=F) gained 1.7% at around 11.30am in London, sitting at $56.59 (£40.96) a barrel.
Crude (CL=F) also reached a one-week peak, up 1.6% to $53.10 a barrel.
The recent fall in the US dollar has increased the appeal of commodities that are priced into the currency, helping to buoy oil’s gains.
Investors were also pleased by the prospect of more supply from North America after the IEA executive director Fatih Birol said in a Bloomberg television interview that a “big chunk” of US shale is profitable at current oil prices. Despite that statement, he added a caveat that drillers should be aware of crude’s declining share in the future global energy mix.
Birol said that many shale producers will be able to increase production this year and in 2022, with the short term focused on America’s supply “to fill the gap” in the supply-demand oil balance.
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“If yesterday’s interview with IEA Director Birol is regarded as indicative of the IEA monthly report that is due to be published this week, the report is likely to contain a higher estimate of US oil production this year,” said Commerzbank in a recent note.
“Last year, the US shale oil sector suffered among other things from the highly reticent attitude of investors and the resulting lack of financial support,” it continued. “This scepticism could vanish now in view of higher oil prices and thus better prospects, not to mention the investment plight of institutional investors and the generally exuberant sentiment on the financial markets.”
Despite this optimism, the bank said the steep rise oil markets are currently experiencing “is a double-edged sword” and will be followed by a decline in the second quarter.
Oil prices have risen more than 45% since the end of October following COVID-19 vaccines hitting the market and more people getting inoculated as governments get vaccination campaigns underway.
In addition, the recent US Democratic presidential victory has led to expectations of greater fiscal stimulus once president-elect Joe Biden takes office. These developments have offered oil watchers hope that global economies will open up again, increasing demand for gasoline-fuelled transportation, including cars and planes.
Watch: Global equities take a breather
