Oil prices fall on rising U.S. dollar, expectations for supply gains

By Sonali Paul
MELBOURNE, Feb 26 (Reuters) - Oil prices fell on Friday as a
collapse in bond prices led to gains in the U.S. dollar and
expectations grew that with oil prices back above pre-pandemic
levels, more supply is likely to come back to the market.
U.S. West Texas Intermediate (WTI) crude CLc1 futures
dropped 36 cents, or 0.6%, to $63.17 a barrel at 0241 GMT,
giving up all of Thursday's gains.
Brent crude LCOc1 futures for April fell 18 cents, or
0.3%, to $66.70 a barrel, following a 16 cent loss on Thursday.
The April contract expires on Friday. The more active May
contract LCOc2 fell 32 cents, or 0.5%, to $65.79.
"Bonds are selling off reasonably aggressively and the U.S.
dollar has firmed this morning. That's providing a bit of a
headwind for crude oil this morning," said Lachlan Shaw,
National Australia Bank's head of commodity research.
A stronger greenback makes U.S.-dollar priced oil more
expensive for those buying crude in other currencies.
Despite the drop in prices on Friday, both Brent and WTI are
on track for gains of about 20% this month, as markets have
grappled with supply disruptions in the United States, while
optimism has built for demand to improve with vaccine rollouts.
Investors are betting that next week's meeting of the
Organization of the Petroleum Exporting Countries (OPEC) and
allies, together called OPEC+, will result in more supply coming
back to the market, given the recent jump in prices and
expectations that demand will improve as pandemic lockdowns ease
heading into the northern hemisphere summer.
"The stakes at play this time around are particularly large
(for OPEC+) insofar as oil prices have more than recovered to
pre-pandemic levels, global inventories are continuing to trend
down, and vaccine rollouts are accelerating," Shaw said.
"The market's probably right to think at this price level
and given what the fundamentals are doing, there'll be more
supply coming into the market over time."
U.S. crude prices also face headwinds from the loss of
refinery demand after several Gulf Coast facilities were
shuttered during the winter storm last week. There is about 4 million barrels per day of capacity still
shut and it may take until March 5 for all of the shut capacity
to resume though there is risk of delays, analysts at J.P.
Morgan said in a note this week.
"The greater concern to U.S. crude oil market participants
should be the recovery of refinery demand," the analysts said.
"As refiners assessed the damage to their facilities, it
became clear that the road to recovery would be weeks rather
than days."