Oil Prices End Higher as Dollar Rally Fades

Oil prices rose for a fifth straight day Friday, bolstered by the dollar's swoon and tightening supplies.

U.S. crude futures settled up 63 cents, or 0.96%, at $66.14 a barrel on the New York Mercantile Exchange -- a fresh three-year high. Brent, the global benchmark, rose 10 cents, or 0.14%, to $70.52 a barrel on ICE Futures Europe, its second highest settlement of the year.

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Oil prices have been on a tear lately -- both benchmarks have posted weekly gains five of the past six weeks.

The dollar's swings whipsawed oil prices this week. Oil prices tumbled Thursday afternoon after President Donald Trump expressed his preference for a stronger dollar, sending the dollar up in late trading. But investors quickly resumed selling the battered U.S. currency. The WSJ Dollar Index, which tracks the U.S. currency against a basket of 16 currencies, was down 0.38% Friday afternoon.

Mr. Trump "did attempt yesterday evening to dispel the impression that his government prefers a weak U.S. dollar...but he didn't really succeed, " according to analysts at Commerzbank on Friday. "For as long as the U.S. dollar remains on the defensive, no more pronounced price fall on the oil market is likely to ensue."

Oil often moves inversely to the dollar, since a weaker dollar makes the commodity cheaper for foreign buyers. That could keep demand strong even as prices rise, analysts said.

"Loose fiscal policy in the U.S., a recovery in growth in Europe and an acceleration in emerging market growth have all combined to push the dollar lower and oil prices higher," Bank of America Merrill Lynch analysts wrote Friday. "As such, oil prices in local currency have not moved up as fast, temporarily cushioning the negative price elasticity effects on the demand side."

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 world-wide glut.

U.S. crude futures have also gotten a boost lately from draining stockpiles at the Cushing, Okla., storage hub -- the delivery point for the Nymex crude contract. Infrastructure bottlenecks had kept inventories there high, but that has been easing.

"Cushing inventories are falling at a rapid rate, in part for line fill on the newly operational Diamond pipeline and could fall to the bottom of the five-year seasonal range within the next week -- all very supportive for the WTI differential," Jefferies analysts wrote.

For years, traders could make money by parking crude in storage, because the price of oil delivered in the future was higher than the price of oil for delivery right away. That is no longer the case, which could keep supplies from building up again.

That price structure also benefits investors, who profit a bit each month when they roll their positions forward. That attracts more buying.

Still, bullish bets on oil prices are already at record levels, and the large influx of money from speculative investors could raise the risk of a swift reversal.

"The trade is to go higher until it doesn't," said Tariq Zahir, managing member of Tyche Capital Advisors. "If you reverse downward, it could accelerate rather quickly."

But market participants shook off a report that a dozen oil rigs were put to work last week, bringing the total to 759 -- its highest since August, according to a weekly report from oil-field services firm Baker Hughes

Gasoline futures rose 2.23%, or 1.16%, to $19377 a gallon. Diesel futures rose 2.06 cents, or 0.97%, to $2.1360 a gallon.

Write to Alison Sider at alison.sider@wsj.com and Christopher Alessi at christopher.alessi@wsj.com

(END) Dow Jones Newswires

January 26, 2018 15:43 ET (20:43 GMT)