U.S. crude jumps to three-month high as dollar drops on weak retail sales data

U.S. crude oil rallied Thursday to its best level in three months, shrugging off a bearish supply and demand outlook from the International Energy Agency and bouncing from losses in the previous session that were driven by an oversized build in domestic crude inventories.

U.S. retail sales data that showed a larger than expected decline in January sparked a selloff in the dollar, with some renewed optimism over the potential for interest rate cuts from the Federal Reserve, which could be positive for oil demand.

A weaker dollar usually helps oil prices because it makes the commodity cheaper for holders of other currencies.

In its monthly report, the IEA reiterated its oil demand growth estimate of 1.2M bbl/day for 2024 while forecasting a rise in supply by 1.7M bbl/day, up from its previous forecast of 1.5M bbl/day.

“Nobody believed IEA’s downbeat forecast as traders cling to OPEC’s report released earlier this week that painted a much rosier picture” for demand, Manish Raj, managing director at Velandera Energy Partners, said according to MarketWatch.

Front-month Nymex crude (CL1:COM) for March delivery closed +1.8% to $78.03/bbl, its eighth gain in nine sessions and highest settlement since November 14, and front-month April Brent crude (CO1:COM) ended +1.5% to $82.86/bbl, its seventh increase in nine days and highest since late January.

ETFs: (NYSEARCA:USO), (BNO), (UCO), (SCO), (USL), (DBO), (DRIP), (GUSH), (NRGU), (USOI)

Energy (NYSEARCA:XLE) surged to the top of the day’s S&P sector leaderboard, +2.8%, highlighted by Targa Resources (TRGP), +5.6% after beating Q4 adjusted EBITDA estimates, and Diamondback Energy (FANG), +5.1% and hitting an all-time high $179.53.

ANZ Research said it expects crude prices will rise above $90/bbl later this year, believing broadly negative market sentiment should see OPEC extend its current production cuts into Q2.

“We see the market largely balanced in the current quarter and expect fundamentals to improve as demand recovers,” ANZ said, adding that OPEC’s currently high levels of spare capacity are acting as a safeguard against rising geopolitical concerns of supply disruption.