Oil Mixed as Dollar Rally Fades

Oil prices were mixed Friday morning, with the dollar's swoon and tightening supplies helping to lift U.S. crude futures, while the global benchmark edged lower.

U.S. crude futures recently rose 58 cents, or 0.89%, to $66.09 a barrel, on the New York Mercantile Exchange -- on track to end the week at a fresh three year high. Brent, the global benchmark, edged lower by 3 cents, to $70.39 a barrel, on ICE Futures Europe.

The dollar reversed a short-lived rally ignited by President Donald Trump's encouragement of a stronger U.S. currency, as traders weighed statements from the U.S. administration that appeared to be at odds. The WSJ Dollar Index, which tracks the U.S. currency against a basket of 16 currencies, was down 0.42% in morning trade.

Oil often moves inversely to the dollar, since a weaker dollar makes the commodity cheaper for foreign buyers. That relationship has come into play this week: oil prices tumbled Thursday afternoon after President Donald Trump expressed his preference for a stronger dollar, sending the dollar up in late trading.

Mr. Trump's comments came on the heels of remarks by his Treasury secretary, Steven Mnuchin, who earlier in the week told a Davos gathering that a "weaker dollar is good for trade." Those remarks sent the dollar to three-year lows, bolstering oil prices.

Mr. Trump "did attempt yesterday evening to dispel the impression that his government prefers a weak U.S. dollar...but he didn't really succeed, " according to analysts at Commerzbank on Friday. "For as long as the U.S. dollar remains on the defensive, no more pronounced price fall on the oil market is likely to ensue."

U.S. crude futures have also gotten a boost from draining stockpiles at the Cushing, Okla., storage hub -- the delivery point for the Nymex crude contract. Infrastructure bottlenecks had kept inventories there high, but that has been easing.

"Cushing inventories are falling at a rapid rate, in part for line fill on the newly-operational Diamond pipeline and could fall to the bottom of the five-year seasonal range within the next week -- all very supportive for the WTI differential," Jefferies analysts wrote.

For years, traders could make money by parking crude in storage, because the price of oil delivered in the future was higher than the price of oil for delivery right away. That is no longer the case, which could keep supplies from building up again.

But the narrowing gap between U.S. and international prices could limit exports, slowing what has been a relief valve for U.S. production, traders said.

Oil prices have been steadily grinding higher, trading at their highest levels since late 2014. But some said

"The trade is to go higher until it doesn't," said Tariq Zahir, managing member of Tyche Capital Advisors. "If you reverse downward, it could accelerate rather quickly."

One trigger could be U.S. production, which is expected to rise above 10 million barrels a day this year.

Traders will be watching for weekly data on the number of rigs drilling oil well, scheduled to be released Friday from oil-field services firm Baker Hughes.

Gasoline futures recently rose 0.34%, to $1.922 a gallon. Diesel futures recently traded up 0.6%, to $2.1281 a gallon.

Write to Alison Sider at alison.sider@wsj.com and Christopher Alessi at christopher.alessi@wsj.com

(END) Dow Jones Newswires

January 26, 2018 11:54 ET (16:54 GMT)