Oil prices inched higher as the dollar lost ground against the euro on Tuesday, a report said.
The price of Brent, the global oil benchmark, climbed 3.5 per cent to $49.84 a barrel, while West Texas Intermediate, the U.S. standard, advanced 3.1 per cent to $46.54 a barrel, both fuelled by the slide of the U.S. currency, the Financial Times said.
Crude has more than halved since touching a high in mid-June, as excess supply, lackluster demand and a rising dollar weigh on energy prices. The DXY index, which measures the U.S. dollar against a basket of its biggest counterparts, fell nearly 0.8 per cent to 94.07, the Times said.
Michael Loewen, commodity strategist at TD Securities, said, “The softer dollar and relative strong economic data out today is supporting oil barrel economics, in our view“, the report said.
Earlier on Tuesday, reports showed new home sales eclipsed economist forecasts in December while consumer confidence jumped to a seven-year high, according to the Times.
Oil was also buoyed by comments from Abdallah El-Badri, secretary-general of the Organization of Petroleum Exporting Countries, who said that prices could climb to $200 a barrel if long-term investment in the industry declines, the report said.
Dave Lutz, head of ETFs at Jones Trading, noted “[It] felt like the move higher was a lot of short covering, propelled by the weaker dollar. There doesn’t seem to be any velocity building around a specific headline”, the Times said.
The euro rose for a second day against the dollar after an 11-year low on Monday, ahead of a meeting of the Federal Reserve that may push back expectations for when U.S. interest rates will start to rise, MarketPulse said.
Meanwhile, collapsing crude prices are confronting scores of smaller U.S. oil producers with the grim choice of either shutting older high-cost wells or burning through cash in the hope of riding out the downturn, Reuters said.
As oil prices fell by more than half over the last six months from more than $100 per barrel, the U.S. oil industry responded by slowing its blistering growth and dialing back expansion plans, according to Reuters.
Now, with U.S. crude around $46 a barrel, operators are already closing some small old wells, known as strippers, and tens of thousands of similar wells are on the verge of losing money. A further slide could, by some estimates, idle an equivalent of up to 2 percent of U.S. supply, slowing overall output growth more than expected or even leaving it flat, the report said.
There are about 400, 000 stripper wells in the United States. They often produce just a few barrels a day, but together they account for up to 1 million barrels per day, a ninth of U.S. output, Reuters said.