Brent crude oil revenues of the U.S. intermediate and internationals fell more than 2.5% on Friday as a steep rise in the U.S. Dollar raised foreign demand for the dollar-denominated asset. At the same time traders began to price in terms of potential supply increases starting in April.
On Friday, WTI crude oil settled April at $ 61.50, down $ 2.03 or -3.20% and May Brent crude ended at $ 64.42, down $ 1.69 or -2.62%.
The catalyst behind the jump in the U.S. Dollar was a fall in bond prices. The view that more supply is returning to the market was likely linked to the rally in crude oil prices to bounce above pre-pandemic levels.
Traders also said crude oil prices were under pressure from recent highs as energy companies in Texas began preparing to restart oil and gas fields with freezing weather and power shortages.
Crude oil declines as U.S. dollar jumps amid compliance in financial yields
A dollar-denominated crude was put under pressure on Friday after a jump in the U.S. Dollar was triggered by a rise in Treasury yields. On Thursday, the 10-year yield rose more than 16 basis points to 1.614%, the highest level since February 2020 and more than half a percentage point higher since the end of January.
The move moves underperforming commodities and stock market investors as well as buyers of commodity-linked currencies, at higher risk.
The jump in yield was linked to a fall in bond prices after U.S. Federal Reserve Chairman Jerome Powell reiterated Tuesday that interest rates will remain low and the Fed will continue to buy bonds to support the U.S. economy, but failed to convince traders that the central bank would not change monetary policy even if the economy warmed up and inflation rose.
OPEC + to increase medium oil production at the meeting
Concerns about increased supply were also weighing on prices after Reuters reported that OPEC + oil producers will consider a slight easing of oil supply loops from April due to price surges.
Three OPEC + sources said that a yield increase of 500,000 barrels per day from April would look possible without raising investments, although a revised supply and demand balance will be decided by ministers to consider at their March 4 meeting.
Oil expands losses as Texas prepares to increase yields after freezing
Oil prices fell for a second day on Friday, rebounding further from recent highs, as energy companies in Texas began preparing to restart oil and gas fields with freezing weather and power outages.
Texas refiners halted about a fifth of the country’s oil processing amid power outages and extreme cold.
Short Term Forecast
Not all of these events are likely to lead to a significant shift in mobility as OPEC + controls supply and vaccine progression leads to increased demand. However, price withdrawal would be more correct in nature because prices are well above pre-release levels at this time and ahead of the fundamentals.