Oil prices rose by more than 1 percent on Tuesday as the dollar slipped to an 18-month low against the yen, potentially increasing fuel demand, although gains were restricted by rising Middle East output that renewed concerns of a global supply overhang.
Brent crude future were trading at $46.29 per barrel at 0729 GMT, up around half a dollar or 1 percent from their last close. U.S. crude futures CLc1 were also up almost half a dollar and more than 1 percent at $45.25 a barrel.
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There were similar moves in physical oil markets, where Dubai crude, as quoted by price-reporting agency Platts, rose to an average of $39.028 a barrel for April, the highest in five months, traders said on Tuesday.
Higher oil prices came as the dollar slumped, which makes purchases of dollar-denominated commodities cheaper for countries using other currencies, potentially spurring demand and investor interest.
The dollar has lost more than 7 percent of its value this year against a basket of other leading currencies .DXY, hitting an 18-month low against Japan’s yen on Tuesday.
Virendra Chauhan of Energy Aspects said the weak U.S. dollar was a factor in rising oil prices, but also pointed to a “sentiment shift”, with significant passive and commodity trading advisor (CTA) money flows back into energy after two years out.
Traders said, however, the gains were capped by rising output in the Middle East as well as fears over China’s economic health after factory activity shrank for a 14th straight month in April.
Barclays said China’s oil demand grew by 180,000 barrels per day (bpd) in the first quarter, smaller than in previous years.
“A key area to watch is the Chinese car industry,” the bank said.