Oil set for second weekly gain amid drop in inventories and weaker dollar

This comes despite Opec+'s decision to add supply and concerns about the impact of Covid-19 on energy demand

Oil producers in the Gulf of Mexico are trying to bring output back online after Ida swept through the region. Getty Images

Oil headed for a back-to-back weekly gain, supported by signs the global crude market is tightening and a weaker US currency.

West Texas Intermediate, which was little changed, is up 1.7 per cent since last Friday. US government data this week showed a larger-than-expected draw in crude inventories in the run-up to the disruption caused by Hurricane Ida. The dollar has eased, making commodities, including crude, cheaper for overseas buyers.

Oil’s climb this week came even as the Organisation of Petroleum Exporting Countries and its allies decided to add supply and concerns lingered about the impact of the Covid-19 pandemic on energy demand. In its move, Opec+ cited lower crude stockpiles in developed countries and an accelerating recovery. There have been positive signs from Asia, too, with revived buying from China’s independent refiners and improved consumption in India.

“There’s probably some more upside,” said Vandana Hari, founder of Vanda Insights. “The Delta wave is on its last legs and unless another nasty variant sweeps in, economic and oil demand sentiment should start looking up.”

In the US, oil producers in the Gulf of Mexico are still trying to bring output back online after Ida swept through the region last weekend. Among those affected, Royal Dutch Shell found damage at offshore facilities that transfer supply from its Mars assets. Exxon Mobil has tapped the US Strategic Petroleum Reserve to revive production in Louisiana.

Further details on the disruption may come later on Friday when US President Joe Biden visits Louisiana to survey some of the damage. The president will meet with Governor John Bel Edwards and local officials in the state, where hundreds of thousands of homes and businesses remain without electricity .

Investors, including in commodities, are also awaiting key US payrolls data for insights into the strength of the labour market recovery, which may help to influence the Federal Reserve’s plan to taper its asset-purchase programme. A weaker-than-expected reading may aid the dollar, buoying oil.