(Bloomberg) -- Oil extended declines as the dollar strengthened, adding more volatility to the market after a mixed industry report on U.S. stockpiles.
Futures in New York have lost more than 3% 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 crude inventories rose last week, while gasoline stockpiles fell, according to people familiar.
Despite the dip this week, crude is expected to resume its upward trend, which may encourage more activity from U.S. 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.
“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.
See also: Tanker Rates to Ship U.S. Oil to Europe Rise 80% After Cold
U.S. gasoline inventories dropped by 8.5 million barrels last week, while distillates -- a category that includes diesel -- fell by 4.8 million barrels, the API said. Crude stockpiles rose by almost 13 million barrels, which would be a third weekly gain if confirmed by government figures on Wednesday.
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