Oil prices dip on resurgent dollar

Oil prices dipped on Thursday as a stronger US dollar brought them off multiyear highs, but losses were limited by a big drop in US crude inventories.

Brent futures dropped 33c, or 0.4%, to $74.06/bbl by 8.36am GMT after reaching the highest since April 2019 in the previous session.

Similarly, US crude futures inched down 28c, or 0.3%, to $71.87/bbl, after reaching their highest since October 2018 the previous day.

The dollar boasted its strongest single day gain in 15 months after the Federal Reserve signalled it might raise interest rates at a much faster pace than assumed. A firmer greenback makes oil, which is priced in dollars, more expensive in other currencies, potentially weighing on demand.

“Energy markets became so fixated over a robust summer travel season and Iran nuclear deal talks that they somewhat got blindsided by the Fed’s hawkish surprise,” said Edward Moya, senior market analyst at OANDA.

“This pullback in oil prices should be temporary as the fundamentals on both the supply and demand side should easily be able to compensate for a rebounding dollar,” Moya said.

Still, the losses were limited as data from the Energy Information Administration showed that US crude oil stockpiles of the worlds biggest consumer dropped sharply last week as refineries boosted operations to their highest since January 2020, signalling continued improvement in demand.

Prices were also boosted by news that refinery throughput in China, the world’s second-largest oil consumer, rose 4.4% in May from the same month a year ago to a record high.

The world’s biggest oil traders said this week they expect prices to remain above $70/bbl, with demand expected to return to pre-pandemic levels in the second half of 2022.

Reuters