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Oil Prices Edge Higher on Weaker Dollar as Investors Watch Out for Rising Supplies

Oil prices edged up in early Asian trade on Friday, supported by a weaker dollar, as investors weighed rising supplies and the impact on fuel demand from the COVID-19 pandemic.

Brent crude futures for June climbed 7 cents, or 0.1%, to $63.27 a barrel by 0106 GMT. The U.S. West Texas Intermediate (WTI) crude for May was at $59.77 a barrel, up 17 cents, or 0.3%.

oil Prices 09-04-2021
WTI crude oil Index One Year Performance Chart
Effect of the Weak USD on Oil Supply

The U.S. dollar index, which tracks the greenback against a basket of its peers, was at 92.132 after an earlier decline from around 92.4.

“A weaker USD and falling US bond yields helped support investors’ appetite in commodity markets,” ANZ Analysts

A weaker dollar makes oil cheaper for holders of other currencies, which usually helps boost crude prices.

Both contracts are on track to post a 2%-3% drop this week after a decision by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, including Russia, a group known as OPEC+ increase supplies by 2 million barrels per day between May and July.

Although investors are optimistic that global oil inventories will continue falling as the economic recovery from COVID-19 picks up speed and demand for fuel increases, continuous outbreaks of COVID-19 cases globally and the ensuing restrictive measures are curbing some investors’ enthusiasm.

A slower-than-expected vaccine rollout globally is also hampering the recovery and increasing doubts about fuel demand recovery in turn.

Stephen Innes, the chief global markets strategist at Axi, said oil prices are expected to trade in a range between $60 and $70 as investors weigh these factors.

He added that the sudden calm and drop in volatility in the markets had attracted passive investors as prompt inter month spreads have widened in backwardation.

In a backwardated market, as Brent is in now, front-month prices are higher than those in future months implying tighter supplies.

Read also; Oil Prices Fall on Unexpected Gasoline Surge