Stock Saudi Aramco oil
An employee looks on at a Saudi Aramco oil facility in Abqaiq, Saudi Arabia. Oil extended declines as the dollar strengthened, adding more volatility to the market. Image Credit: Reuters

Singapore: Oil extended declines as the dollar strengthened, adding more volatility to the market after a mixed industry report on US stockpiles.

Futures in New York have lost more than 3 per cent over the past two sessions in a volatile start to the week that included a brief surge to an October 2018 high on Monday. A stronger dollar reduces the appeal of commodities priced in the currency. The American Petroleum Institute reported gasoline stockpiles fell last week, while crude inventories expanded, according to people familiar.

Despite the dip this week, crude is expected to resume its upward trend, which may encourage more activity from US drillers. Oil production across American shale patches next year is expected to climb to the highest annual rate since 2019, according to a government report.

Oil is still up more than 30% this year as the market tightens amid output cuts from Saudi Arabia and OPEC+, and as the demand outlook improves with the rollout of Covid-19 vaccines. Tensions have also escalated in the Middle East after a key crude export terminal in the kingdom was attacked on Sunday, adding to a recent series of assaults on the major producer.

Improving demand

"Demand is expected to improve and supply is continuing to shrink, but some are feeling the burden of this massive rally," said Kim Kwangrae, commodities analyst at Samsung Futures Inc. "It's a mixed market."

Elevated prices and reduced barrels from Middle East producers due to OPEC+ curbs is accelerating India's push to diversify its sources of crude and pursue alternative energy, according to the chairman of Hindustan Petroleum Corp. The output cuts are also have an impact on the shipping market, with tanker owners losing money hauling oil on a key route to China.

US gasoline inventories dropped by 8.5 million barrels last week, while distillates - a category that includes diesel - fell by 4.8 million barrels. Crude stockpiles expanded by almost 13 million barrels, which would be a third weekly advance if confirmed by government figures on Wednesday.