Oil increases on predictions of United States stimulus leading to demand

U.S. crude inventories fall more than expected in latest week – EIA

West Texas Intermediate Crude oil futures for February are up $0.70 or 1.47% at $48.32 a barrel.

"It is kind of year-end quiet, but a weaker dollar is helping keep a floor under markets", said Stephen Innes, chief global market strategist at Axi.

In this way, the losses in the greenback have become the key factor that has kept the oil prices higher, as the oil price is inversely related to the price of the U.S. dollar.

Oil prices strengthened earlier in the day, with Brent rising above $52 a barrel, as Democrats aimed for larger $2,000 COVID-19 relief payments following U.S. President Donald Trump's signing of a $2.3 trillion stimulus deal.

Thus, the progress on the latest United States stimulus measures and optimism over the Brexit deal have boosted the market risk sentiment, and this has played a major role in underpinning the higher-yielding crude oil prices.

Oil prices could gain strength as vaccination programmes around the world begin next year, allowing countries to relax restrictions on movement and business activity.

Crude oil stocks fell by 4.8 million barrels last week to about 492.9 million barrels, exceeding analysts' expectations in a Reuters poll for a draw of 2.6 million barrels, data from API showed.

Still, concerns about coronavirus lockdowns are capping the gains.

Though prices have climbed the last two months, additional lockdowns have weighed again on fuel demand and a new, highly infectious variant of the virus has raised alarms. Major oil companies, such as BP Plc and Total SE, published forecasts that include scenarios where global oil demand may have peaked in 2019.

OPEC+ is tapering record oil output cuts made this year to support the market.

OPEC producers and allies including Russian Federation, the so-called OPEC+, have agreed to loosen their output cuts by 500,000 barrels per day from January.

Furthermore, Russia plans to support another increase in OPEC+ production at the group's next meeting scheduled for 4 January 2021, which will determine how much supply should be added to the market in February.