Oil Falls to Two-Week Low on Stronger Dollar
By Dan Molinski and Christopher Alessi
-- Oil prices fell to a two-week low Monday due to a stronger dollar and simmering concerns that unresolved U.S.-China trade negotiations could hurt the global economy and reduce oil demand.
-- West Texas Intermediate futures, the U.S. oil standard, ended 0.6% lower at $52.41 a barrel on the New York Mercantile Exchange, the lowest since Jan. 28.
-- Brent crude, the global oil benchmark, ended down 1% at $61.51 a barrel on London's Intercontinental Exchange, the lowest since Jan. 29.
Dollar: Oil prices fell nearly 5% last week, and a key culprit was a surging dollar due to a very strong U.S. jobs report Feb. 1. Oil, like many commodities, is bought and sold in the U.S. currency, so oil prices often move in the opposite direction of the dollar. The WSJ Dollar Index extended its gains Monday, rising 0.4%.
"Today's trade was largely featureless other than the additional downside pressures of a strong dollar on the oil complex," said analysts at Ritterbusch and Associates in a research note. "Until some dollar weakness begins to develop, the complex could have difficulty advancing much this week."
U.S.-China Trade: Oil also continued to be pressured lower due to worries that negotiations for a U.S.- China trade deal may not happen as quickly as initially expected. "Trade talks are the main issue for oil," said Phil Flynn at Price Futures in Chicago, noting that oil prices fell last week when White House economic adviser Larry Kudlow told Fox Business the U.S. and China are still miles apart on a trade deal. "While that comment may be just a negotiating tactic, the market took it seriously and went on to post its worst week of the new year." Mr. Flynn added.
Mixed Messages: Oil prices are "still trying to figure out what lead to follow. On the one hand, there is the OPEC+ cut story, now coupled with increasing issues around Venezuelan supply, and a global equity market that is still pretty close to the rebound highs set over the last two weeks," analysts at consulting firm JBC Energy wrote in a note Monday. "At the same time," they added, "it has to be argued that a lot of the economic data that has been released over the last few days has really not been too encouraging, and U.S.-Chinese trade talks are also seemingly not progressing very fast."
Rob Haworth, senior investment strategist at U.S. Bank Wealth Management, said prices may stay range bound until the higher-demand spring-and-summer driving season arrives "as lower oil output by OPEC, Venezuela and Russia is offset by softer global economic growth pressuring demand."
OPEC: The oil cartel's latest plan to curb output should help to rebalance the market within the first quarter of this year, United Arab Emirates oil minister Suhail al-Mazrouei reportedly told al-Arabiya television Monday. OPEC and 10 producers outside the cartel, including Russia, agreed late last year to collectively hold back crude output by 1.2 million barrels a day for the first half of this year, part of an effort to rein in a burgeoning supply glut and boost prices. As a result, OPEC has "reduced exports in January sharply, tightening the physical market," according to Martijn Rats, oil analyst at Morgan Stanley.
-- The U.S. Energy Information Administration releases its monthly Short Term Energy Outlook on Tuesday.
-- OPEC releases its monthly oil market report on Tuesday, followed by that of the International Energy Agency on Wednesday.
Write to Dan Molinski at Dan.Molinski@wsj.com and Christopher Alessi at email@example.com