Oil Slips With U.S. Offshore Supply Shut-Ins Ebbing, Dollar Rise

(Bloomberg) -- Oil fell in New York alongside a broader commodity selloff that was party driven by a stronger dollar as investors weighed the impact mixed U.S. economic data will have on the Federal Reserve’s plan to taper stimulus.

West Texas Intermediate futures fell as much as 1.5%, after settling above $72 a barrel for the first time since July on Wednesday. Recovery in offshore U.S. production is progressing steadily and at this point some 30% of supply remains shut-in more than two weeks after Hurricane Ida. U.S. Retail sales unexpectedly increase in August, suggesting that demand for goods remains strong. A separate report showed weekly jobless claims increased. 

“Prices are somewhat elevated and that along with reduced risk appetite, may have prompted longs to take profits,” said Bart Melek, head of commodity strategy at TD Securities. Also, the rally in U.S. dollar may have caused some shift away from commodities, he added. 

Prices have been pushed higher in recent days “by supply outages combined with expectations of switching from gas to oil in the power sector,” said Helge Andre Martinsen, a senior oil market analyst at DNB Bank ASA. “We still believe in softer prices toward year-end and early next year as curtailed production returns and OPEC+ continues to increase production.”

Some bullish signals for oil are still prevailing. U.S. crude inventories dropped by more than 6 million barrels last week to a two-year low, according to government figures, as coronavirus vaccination programs permit economies to reopen. Chevron Corp. Chief Executive Officer Mike Wirth warned that the world is facing high energy prices for the foreseeable future.

The global oil market should remain tight through the end of the ear despite planned production increases by OPEC+, according to a note from Commerzbank AG. 

The investor optimism is showing up in key oil timespreads widening. Trading of bullish Brent options also surged to a two-month high on Wednesday. 

Strong prices for gas, liquefied natural gas and oil are expected to last “for a while” as producers resist the urge to drill again, Chevron’s Wirth told Bloomberg News. Norway’s Equinor ASA said Thursday it also expects European gas prices to remain high over winter. 

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