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Oil edges up, dollar struggles

Oil edges up, dollar struggles

LONDON, July 17: Oil edged up to about $49 a barrel on Monday as fewer drilling rigs were added in the United States, helping ease concerns that surging shale supplies will undermine OPEC-led production cuts, reports Reuters. U.S. drillers added two oil rigs in the week to July 14, bringing the total to 765, Baker Hughes (BHGE.N) said on Friday. RIG-OL-USA-BHI Rig additions in the past four weeks averaged five, the slowest pace since November. Expectations that a long-awaited crude market rebalancing was under way was also bolstered by the sharp drop in U.S. crude inventories in the week to July 7. “The most pronounced inventory reduction in the U.S. in 10 months and the resulting decline in U.S. crude oil stocks to below the 500 million-barrel mark in the last reporting week have clearly prompted a shift in sentiment,” said Carsten Fritsch, analyst at Commerzbank. “The oil rig count only rose by two – yet prices would have responded negatively to this just a few weeks ago.” Brent crude LCOc1, the global benchmark, was up 5 cents at $48.96 a barrel by 1219 GMT. U.S. crude CLc1 traded at $46.49, down 5 cents. Oil prices are less than half their mid-2014 level because of a persistent glut, even after the Organization of the Petroleum Exporting Countries with Russia and other non-OPEC producers cut supplies since January. While OPEC-led cuts have offered prices some support, rising supplies from Nigeria and Libya, two OPEC states exempt from the pact, and increasing U.S. production have weighed on the market. Kuwait said on Friday the market was on a recovery track due to rising demand and said it was premature to cap Nigerian and Libyan output. An OPEC and non-OPEC committee meets in Russia on July 24 to discuss the impact of the deal. In a sign of strong demand, data on Monday showed refineries in China increased crude throughput in June to the second highest on record. OPEC is hoping higher demand in the second half will get rid of excess inventories. “There is almost an agreement that the second half of the year should be tighter than the first half due to significant jumps in demand forecasts,” oil broker PVM said. “The net result is a rise in the demand for OPEC oil.” The US dollar held at a 10-month low against the dollar while high-yielding currencies such as the Australian dollar rose to two-year peaks as investors piled into leveraged bets after data dampened expectations of a U.S. rate hike in coming months. Some of the biggest gains were seen in the yen crosses such as sterling, earlier in the day after Chinese economic data topped expectations, though some profit taking set in at higher levels. “The broader outlook still remains positive for risk but the recent volatile moves seen in higher yielding currencies such as the Turkish lira means that investors should be wary of a washout in crowded positions,” Luis Costa, a strategist at Citibank in London, said. China’s second-quarter gross domestic product topped forecasts with a rise of 6.9 percent on the year, while retail sale and industrial output were both strong. The Aussie shot to a two-year high and breached major chart resistance in the process in the $0.7700/7778 range. The Aussie was last at $0.7814 with bulls targeting the 200-week moving average around $0.8018. U.S. rate hike expectations have been pared to less than a 50-percent probability after the latest inflation print on Friday and with no top-tier data this week, markets have plenty of time to mull over the future direction of interest rates. The repeated disappointment on prices cast a question mark over the Federal Reserve’s confidence that inflation would soon rebound. “It is a possible third hike this year that the market is now sceptical of,” Brown Brothers Harriman strategists wrote in a note. Latest positioning data suggest markets are also turning bearish on the dollar with the first U.S. dollar shorts evident since May 2016. However, carry trades are flourishing with Japanese yen shorts at its highest level since June 2015. That pushed the dollar down to fresh 2017 lows against the Singapore dollar and the Mexican peso on Monday. The dollar was trading a shade weaker at 112.485 against the yen.

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