MARKET NEWS

(Bloomberg) -- Oil in New York climbed as the dollar declined, with the market assessing the potential for more supply after the International Energy Agency said a “big chunk” of U.S. shale is profitable at current prices.

Futures rose 0.9% toward $53 a barrel as a weaker dollar increased the appeal of commodities like oil that are priced in the currency. Many producers will be able to boost output and U.S. shale will be needed to fill the gap in the oil balance in the short term, IEA Director Fatih Birol said during a Bloomberg television interview. American crude stockpiles, however, remain at the highest seasonal level in decades after Covid-19 crushed demand.

Crude has rallied recently to the highest since February, but a technical indicator is signaling oil is overbought. Worsening China-U.S. relations are also back in the spotlight as the Trump administration nears its end.

Oil has surged more than 45% since the end of October after Covid-19 vaccine breakthroughs, with Saudi Arabia’s pledge to deepen output cuts over the next two months adding impetus to the rally. The rollout of coronavirus shots is still expected to take some time and the spreading outbreak is raising concerns a sustained rebound in demand won’t take place until later in the year.

“It’s widely thought that above $50 for WTI, shale production starts to swing back in numbers,” said Michael McCarthy, chief markets strategist at CMC Markets Asia Pacific. “The market will certainly be watching U.S. inventory data very closely over the coming weeks to see if that comes to fruition.”

Brent’s prompt timespread was 8 cents in backwardation -- a bullish structure where near-dated prices are more expensive than later-dated ones -- easing from 16 cents on Friday. The market was in contango at the start of last week.

See also: Goldman Brings Forward $65 Forecast for Brent Oil to July

U.S.-China relations, meanwhile, continued to deteriorate after both countries took steps that threaten to cloud the outlook for cross-border commerce. Washington removed self-imposed restrictions on how government officials interact with Taiwan, while Beijing issued new rules allowing Chinese courts to punish global companies for complying with foreign sanctions.