Oil up on U.S. Stockpile Bets; Dollar Quashes Crude’s Highs

© Reuters.

By Barani Krishnan

AiVIF.com -- Oil rose on Tuesday after the 5% plunge of the previous day, as players bet on lower U.S. stockpiles for last week.

But crude’s session highs were quashed by the dollar’s biggest ramp-up in nearly a month amid China’s fury over U.S. House Speaker Nancy Pelosi’s visit to Taiwan, a republic Beijing regards as its territory with no sovereignty of its own.

New York-traded West Texas Intermediate, or WTI, settled up 53 cents, or 0.6%, at $94.42 per barrel, after Monday's drop of more than $4.70.

London-traded Brent settled up 51 cents, or 0.5%, at $100.54, after the previous session’s decline of $3.53, or 3.4%.

WTI got to as high as $96.41 earlier in the day, while Brent peaked at $104.43 on bets that a forthcoming decision on September oil production quotas by OPEC+ would not be negative for the market.

OPEC+ — an alliance tying the 13-member Saudi-led Organization of the Petroleum Exporting Countries with 10 other oil producers steered by Russia — had already agreed to bump up production by 50% from June levels to reach almost 650,000 barrels per day for July and August. President Joe Biden then visited Saudi Arabia last month, raising expectations that the alliance might do more in terms of output. As of Tuesday afternoon, most oil traders disputed that OPEC+ would want to raise production in a slowing U.S. economy.

Despite that supportive stance, the ramping dollar weighed on the highs in oil, making the commodity, which is priced in the currency, costlier for traders using other forms of money.

By 2:30 PM ET(18:30 GMT), the Dollar Index, which pits the greenback against six major currencies, was up almost 0.7% at 105.95, its most in a day since a 1.3% rally on July 5. The session high was 106.10. Earlier on Tuesday, the greenback gauge made a near three-week low of 104.92.

The dollar surged as Pelosi arrived in Taiwan, casting aside private warnings from the Biden administration about the risk that her high-profile diplomatic visit could bring and drawing a sharp response from the Chinese government.

“It’s Pelosi day for the dollar and that’s taken some froth off crude highs for today,” said John Kilduff, founding partner at New York energy hedge fund Again Capital. “The focus though is almost entirely on the upcoming U.S. inventory data, with OPEC+ looking to stand pat on September production.”

Market participants are on the lookout for weekly inventory data, due from API, or the American Petroleum Institute, after market settlement.

The API will release at approximately 4:30 PM ET (20:30 GMT) a snapshot of closing balances on U.S. crude, gasoline and distillates for the week ended July 29. The numbers serve as a precursor to official inventory data on the same due from the U.S. Energy Information Administration on Wednesday.

For last week, analysts tracked by AiVIF.com expect the EIA to report a crude stockpile drop of 629,000 barrels, versus the 4.5-million barrel reduction reported during the week to July 22.

On the gasoline inventory front, the consensus is for a draw of 1.61 million barrels over the 3.3 million-barrel decline in the previous week.

With distillate stockpiles, the expectation is for a climb of 1.04 million barrels versus the prior week’s deficit of 784,000.