Asia Oil Storage Levels Drop, But Crude Prices Rise On Strength of Weakening Greenback

Analysts argue the weak U.S. dollar is still largely responsible for propping up oil prices.

News of crude storage drops in Asia should have been powerful enough to influence traders, but on Friday it was once again a weak U.S. dollar - coupled with recovering stock market prices - that compelled them to cause crude prices to rise once more.

Brent settled up 51 cents to $64.84 per barrel, while West Texas Intermediate rose 34 cents to $61.68, inspiring Bill Baruch, president and founder of Blue Line Futures, to observe that "I don't want to underestimate what the dollar is doing: the weaker dollar has been extremely supportive to crude."

Tony Headrick, an analyst at CHS Hedging LLC,  speculated that "After such a sharp drop that we saw prior to Wednesday, perhaps a recovery was due."

But he added, "However, you look at rig counts ... with the number of U.S. oil rigs increasing by seven, that's a point that should cap an extreme advance in prices."

Comparatively overlooked by traders was news from Asia that oil markets have tightened noticeably as significant amounts of excess crude have been taken off tankers used for storage and delivered throughout the region.

Reuters reported shipping data that shows about 15 super-tankers are currently filled with oil floating off the coasts of Singapore and Malaysia: this is slightly less than last November, and half the number of tankers used for storage in mid-2017.

Moreover, traders say onshore tanks in the region are also not booked out any more, in stark contrast to 2016/17: Oystein Berentsen, director for crude trading at Strong Petroleum, noted, "Most of the contango stocks afloat are sold.....floating storage is no longer economical."

Although the Asian tightening may well affect crude prices in the days and weeks to come, for the time being traders and analysts are focused on the greenback and an equity market that has recovered from earlier dramatic routs: "This week, the dollar index starts trading lower and it has put a bid into the crude oil market, which is now trading relatively to a couple of weeks ago at high levels," said Bob Yawger, director of futures division at Mizuho Securities.

Phil Flynn, senior market analyst at Price Futures Group, concluded with regards to crude's performance on Friday, "Oil prices were strong because the stock market stabilized; as long as we are going to see stock market stability, oil prices are going to look pretty good."

Presumably, those focused on fundamentals must be frustrated by the fact that sentiment continues to sway the market, especially in light of recent important disclosures such as a tightening Asian market and Saudi Arabia admitting that reliable figures on stockpiles are hard to come by; Rob Thummel, portfolio manager at Tortoise Energy, on Thursday remarked, "I'm surprised that oil prices are falling today given the weaker U.S. dollar; currently, the direction of the dollar is having a bigger impact on oil prices than fundamentals."