Oil prices jump as soft dollar, tight supplies support

© Reuters. FILE PHOTO: Sticker reads crude oil on the side of a storage tank in the Permian Basin in Mentone, Loving County, Texas, U.S. November 22, 2019. REUTERS/Angus Mordant

By Florence Tan

SINGAPORE (Reuters) -Oil prices extended gains on Monday, propped up by a weaker dollar and tight supplies that offset concerns about recession and the prospect of widespread COVID-19 lockdowns in China again reducing fuel demand.

Brent crude futures for September settlement rose $2.54, or 2.5%, to $103.70 a barrel by 0648 GMT, after a 2.1% gain on Friday.

U.S. West Texas Intermediate (WTI) crude futures for August delivery gained $2.31, or 2.4%, to $99.90 a barrel, after climbing 1.9% in the previous session.

The U.S. dollar retreated from multi-year highs on Monday, supporting prices of commodities ranging from gold to oil. A weaker dollar makes dollar-denominated commodities more affordable for holders of other currencies.

Last week, Brent and WTI posted their biggest weekly drops in about a month on fears of a recession that will hit oil demand. Mass COVID testing exercises continued in parts of China this week, raising oil demand concerns at the world's second-largest oil consumer.

However, oil supplies remained tight, supporting prices. As expected, U.S. President Joe Biden's trip to Saudi Arabia failed to yield any pledge from the top OPEC producer to boost oil supply.

Biden wants Gulf oil producers to step up output to help tame oil prices and drive down inflation.

On Sunday, Amos Hochstein, a senior U.S. State Department adviser for energy security, said on CBS' Face the Nation that the trip would result in oil producers taking "a few more steps" in terms of supply though he did not say which country or countries would boost output.

"While there have been no immediate pledges for increased oil production, the U.S. has reportedly indicated an expected gradual increase in supply," Baden Moore, head of commodities research at the National Australian Bank, said in a note.

"The wind down of SPR releases from November may offset this incremental supply though if not larger than about 1 million barrels per day."

The next meeting of the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia, together called OPEC+, on Aug. 3 will be closely watched as their existing output pact expires in September.

Global markets are focused this week on the resumption of Russian gas flows to Europe via the Nord Stream 1 pipeline which is scheduled to end maintenance on July 21. Governments, markets and companies fear the shutdown may be extended because of the war in Ukraine.

"Brent crude will find support at the end of the week if Russia does not turn the gas back on to Germany after Nord Stream 1 maintenance," OANDA's senior analyst Jeffrey Halley said.

Loss of that gas would hit Germany, the world's fourth-largest economy, hard and heighten the threat of a recession.

Separately, U.S. Treasury Secretary Janet Yellen said on Saturday she had productive meetings about a proposed price cap on Russian oil with a host of countries on the sidelines of a meeting of the finance chiefs of the Group of 20 major economies.

Yellen raised the price cap idea during a virtual meeting on July 5 with Chinese Vice Premier Liu He, China's commerce ministry said last week.

The ministry had said setting a cap on the Russian oil price is a "very complicated issue" and the precondition to solve the Ukraine crisis is to promote peace talks among relevant parties.