(Bloomberg) — Oil fell below $71 a barrel after the biggest drop in four weeks as traders weighed prospects for a stronger dollar against rising demand.
West Texas Intermediate was 0.4% lower after sinking 1.5% on Thursday amid a broad, copper-to-gold commodities sell-off. The losses in raw materials followed the Federal Reserve’s midweek signal it will in time end the ultra-easy policy brought in to rescue the U.S. economy from the pandemic. That aided the dollar, hurting the appeal of commodities priced in the currency.
Despite the retreat, the U.S. crude benchmark is only narrowly lower this week, supported by signs of robust consumption and falling stockpiles. With the roll-out of coronavirus vaccines boosting mobility, especially in the U.S., Europe and China, optimism about the outlook is reflected in the market’s still-bullish pricing patterns, with near-term oil contracts above those further out.
Oil has rallied in 2021 on surging demand coupled with still-restrained supply from the Organization of Petroleum Exporting Countries and its allies. That combination has tightened the global market at a rapid clip, prompting traders and banks including Citigroup Inc. to forecast further gains in the second half.
“The underlying bullish picture for oil remains on track,” said Jeffrey Halley, senior market analyst of Asia Pacific at Oanda, who highlighted that futures curves continue to be firmly backwardated. “Longer-term players should use this dip, and any other short-term spikes lower today, to load up on oil to reflect the still very positive medium-term outlook,” he said.
Investors are also tracking the situation in Iran. Talks between Tehran and world powers to revive a nuclear accord and potentially allow a resumption of official crude flows have yet to bridge remaining differences. Citizens in the Islamic Republic vote Friday in a presidential election to pick a replacement for Hassan Rouhani, a moderate who helped shepherd the original 2015 deal.
Brent’s prompt time spread was 83 cents a barrel in backwardation after narrowing by just 1 cent during Thursday’s slide. That compares with 58 cents a week ago. Similarly, the gap between the December 2021 price and a year further out was $4.82 a barrel, up from $4.47 last Friday.
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