Asia Oil: Prices stabilize as USD weakens while fiscal stimulus and positive vaccine news resonate

Oil prices are stabilizing towards the top side of recent ranges as the US dollar weakens, this despite crude stocks rising against expectations. When the dollar falls, good things happen and many other things take off – none more so than global stock markets and commodities in general.

Given how fast the global oil market is moving back to balance, traders had thought the previous week's inventory data could have pointed to the start of a declining trend. However, the latest data shows we’re not out of the woods yet. Generally, it’s best not to put too much emphasis on a single week's inventory report as both the API and EIA prints are a notoriously noisy data sets; it’s best to look at this over a rolling four weeks, at minimum.  

US crude stocks rose by 4.9mb last week, but on balance they’ve been broadly static since early June. Most of the recent builds have come in oil products, where stocks rose 3.7mb last week and 27mb since end-May.

Demand stats show that the April lows' sharp recovery has faltered in recent weeks. Still, gasoline demand, as viewed through the lens of real-time mobility data, hasn’t plummeted to the extent many analysts had expected. Google's latest mobility numbers aren’t showing a massive change. Although there has been a moderation in US mobility, it hasn’t, on the whole, fallen off a cliff.

Also, markets are steadying and reacting to the stimulus packages and positive signs from various Covid-19 related vaccine development programs. The US Congress is expected to pass legislation to cover Main Street’s back by providing a short-term extension to unemployment benefits, which will give a boost to oil market sentiment. 

At the same time, the latest vaccine trials' results continue to provide the markets with a shot in the arm – even more so after the US federal government has reached a $1.95 billion deal with Pfizer to acquire 100 million doses of its vaccine candidate against the coronavirus if the Food and Drug Administration gives the OK. The prospect of a Covid-19 cure this year continues to vaccinate the markets to a degree. 

Concerns about the pace of the post-Covid recovery are limiting the upside for oil. However, proper aggregate compliance from the OPEC+ agreement and decisive action to rectify under-compliance by some producers in May and June does suggest negative scenarios are less likely.

Market mover

Oil retraced slightly in London after the headlines about the Chinese consulate in Houston, causing some weaker oil longs to get washed out. 

The US and China have become increasingly antagonistic in their views this year and the market ought to get used to it – even without Trump in the White House. A Biden presidency is unlikely to change the direction of travel. 

So long as the deteriorating political scrim doesn't drive economic fragmentation between the world's largest economies, the political bruhaha remains a tempest in a teapot.