Oil Pared Gains Amid Weaker Equities and Dollar Strength

(Bloomberg) — Oil pared gains alongside weaker equities and a strengthening U.S. dollar.

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West Texas Intermediate crude futures earlier rose as much as 4.1%. A stronger dollar reduces the appeal of commodities priced in the currency. U.S. President Joe Biden said Friday that actions to reduce energy prices are working.

Still, oil remained supported after negotiations between Iran and world powers on a nuclear deal ended Friday with challenges remaining, signaling the market may face the prospect of a longer period without Iranian barrels. A top European enovy said that diplomats attempting to restore the nuclear deal face substantial challenges that need urgent solutions. Talks are set to resume in the middle of next week.

The chances of finalizing an agreement between nations before the end of 2021 has dwindled from slim to none, said Bob Yawger, director of the futures division at Mizuho Securities USA.

Crude has dropped sharply since late October amid moves by major consuming nations to tap their reserves and the emergence of the new virus variant. A more hawkish Federal Reserve was put in a tough spot Friday as U.S. jobs data missed expectations. Meanwhile, the sharp increase in volatility has oil traders heading for the exit, with open interest across the main oil futures contracts plunging to its lowest level in years.

“The bottom might have been reached on Thursday, unless we get some bad news on the new variant,” said Giovanni Staunovo, a commodity analyst at UBS Group AG.

Meanwhile, investors also focused on OPEC+’s decision to add 400,000 barrels a day of crude to global markets in January, essentially placing a floor under prices by giving itself the option to change the plan at short notice.

Prior to the meeting, OPEC+ ministers indicated they were concerned about the impact of omicron on crude demand but were struggling to figure out how serious the new strain would become. By effectively keeping its monthly meeting open, the alliance now has more flexibility to address price swings.

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