Oil Climbs To Fresh Three-Year Highs

FeaturesDow Jones Newswires

Oil prices were bolstered Thursday morning by the Trump administration's apparent endorsement of a weaker U.S. dollar.

Brent crude, the global benchmark, was up 0.34% at $70.76 a barrel on London's Intercontinental Exchange. On the New York Mercantile Exchange, West Texas Intermediate futures were trading up 0.64% at $66.03 a barrel.

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U.S. Treasury Secretary Steven Mnuchin said Wednesday that "a weaker dollar is good for trade," boosting the price of oil and other dollar-denominated commodities. A weaker U.S. greenback generally has an inverse relationship with commodities.

Mr. Mnuchin's comments, which came during the World Economic Forum in Davos, pushed the U.S. currency to its lowest level in three years. The ICE dollar index was on pace for its worst January on record, while the dollar lost 1.67% versus the British pound in its largest one-day percentage decline against sterling since last April.

On Thursday, Mr. Mnuchin appeared to play down the comments and said those remarks were "balanced and consistent with what I've said before."

"The main factor is the dollar," Tom Pugh, commodities economist at Capital Economics said of oil gains Thursday. Still, he said he expects the dollar to strengthen this year on the back of monetary policy tightening in the U.S. That's "likely to put downward pressure on prices, " he said.

Meanwhile, "if the Treasury secretary welcomes the weak currency then so does the market," said Tamas Varga, an analyst at brokerage PVM Oil Associates Ltd.

"Whilst the weak dollar is undoubtedly supportive for oil prices, bulls really started to attack from left, right and center after the [U.S. Energy Information Administration] published its latest inventory report, " Mr. Varga noted.

The EIA on Wednesday said U.S. crude stockpiles dropped by 1.1 million barrels for the week ended Jan. 19 -- the 10th consecutive week of declines.

Crude prices have risen to their highest levels in three years on the back of declining global inventories, a weaker dollar, geopolitical risk to supply and OPEC's ongoing efforts to curb production.

The Organization of the Petroleum Exporting Countries and 10 producers outside the oil cartel, including Russia, agreed late last year to extend an accord to hold back crude output by 1.8 million barrels a day through the end of this year. The deal, first struck in late 2016, was meant to rein a global supply glut that has weighed on prices for over three years.

Saudi Arabia -- the de facto leader of OPEC -- indicated earlier in the week that the participants could continue to hold back production beyond this year.

However, analysts caution that rising U.S. shale production -- which has ramped up on the back of higher prices -- could temper recent market gains. U.S. crude output rose by 128,000 barrels a day last week to 9.878 million barrels a day, according to the EIA.

Among refined products, Nymex reformulated gasoline blendstock -- the benchmark gasoline contract -- was up 0.18%, at $1.91 a gallon. ICE gas oil, a benchmark for diesel fuel, changed hands at $626.00 a metric ton, up 0.89% from the previous settlement.

Write to Christopher Alessi at christopher.alessi@wsj.com

Oil prices rose for the fourth day in a row on Thursday, bolstered by steadily declining stockpiles and a tumbling U.S. dollar.

Light, sweet crude for March delivery gained 42 cents, or 0.6%, to $66.03 a barrel on the New York Mercantile Exchange, on track for the highest settle value since December 2014. Brent, the global benchmark, rose 28 cents, or 0.4%, to $70.81 a barrel.

Prices have rallied this year on signs of a tightening global market, as the Organization of the Petroleum Exporting Countries has worked to alleviate a worldwide glut. Further boosting investor optimism, U.S. inventories have fallen to the lowest level since February 2015.

On Wednesday, the U.S. Energy Information Administration reported that crude stockpiles fell by 1.1 million barrels in the week ended Jan. 19, marking the tenth consecutive week of declines.

Crude sitting in storage at delivery and pricing hub Cushing, Okla. has also fallen in recent weeks, lifting oil prices.

"There's no advantage to putting crude oil in storage, especially in Cushing right now," said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. "That alone would be enough reason for a sizable rally right here."

Traders said a weaker U.S. dollar helped support crude on Thursday, as dollar-denominated commodities like oil became cheaper for foreign buyers. The WSJ Dollar Index fell to the lowest level in three years on Wednesday, after U.S. Treasury Secretary Steven Mnuchin said Wednesday that "a weaker dollar is good for trade."

"Whilst the weak dollar is undoubtedly supportive for oil prices, bulls really started to attack from left, right and center after the EIA published its latest inventory report, " said Tamas Varga, an analyst at brokerage PVM Oil Associates Ltd.

Meanwhile, Saudi Arabia's oil minister and Russia's energy minister sounded unconcerned about rising output from U.S. shale, in remarks this week at the World Economic Forum in Davos, Switzerland.

OPEC along with several producers outside the oil cartel, including Russia, agreed late last year to extend an accord to hold back crude output by 1.8 million barrels a day through the end of this year. The deal, first struck in late 2016, was meant to rein a global supply glut that has weighed on prices for over three years.

Saudi Arabia -- the de facto leader of OPEC -- indicated earlier in the week that the participants could continue to hold back production beyond this year.

But analysts have cited risks from growing supply from U.S. shale producers that are quick to increase output when oil prices rise. According to the EIA report, U.S. production rose by 128,000 barrels last week to 9.878 million barrels per day, a new record.

Stockpiles of fuel also increased last week, with gasoline inventories up 3.1 million barrels and distillates up 600,000 barrels.

Gasoline futures rose 0.3% to $1.9229 a gallon and diesel futures advanced 0.5% to $2.1171 a gallon.

Write to Stephanie Yang at stephanie.yang@wsj.com and Christopher Alessi at christopher.alessi@wsj.com

(END) Dow Jones Newswires

January 25, 2018 12:20 ET (17:20 GMT)

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