Oil prices recover though dollar weighs on sentiment

London — Oil futures recouped some of the previous sesson’s 2% loss on Wednesday, supported by supply concerns stemming from last week’s Opec+ cut to its production target, though a stronger dollar weighed on sentiment.

Brent crude futures were up 36c, or 0.4%, at $94.65 a barrel by 9.20am GMT after touching a session low of $93.33. West Texas Intermediate was up 21c, or 0.2%, at $89.56 after a session low of $88.27.

“There are two dominant forces in the oil market at the moment: the economic outlook being the primary downside risk and Opec+ the upside,” said Oanda analyst Craig Erlam.

“The latter reasserted itself last week with the 2-million barrels a day cut … but growth fears are still dominating in the markets, which may stop the price from taking off.”

Last week, Opec and allies including Russia, collectively known as Opec+, decided to cut their output target by 2-million bbl/day.

“Although Opec+’s [latest] output cut from the August quotas looks large on paper, the effective cut would be smaller,” Citi Research said in a note, adding that it expects the final cut to be less than 900,000bbl/day, in part due to to poor compliance from Iraq.

Also on the supply side, Russia’s state-owned pipeline monopoly Transneft on Wednesday said it had received notice from Polish operator PERN about a leak on the Druzhba oil pipeline, Interfax reported.

On the currency markets, the dollar hit a 24-year high against the yen on concerns about inflation and the pace of increases to US interest rates.

A stronger dollar makes dollar-denominated commodities more expensive for holders of other currencies and tends to weigh on oil and other risk assets.

The IMF’s downwardly revised global growth forecast for 2023 and its warning of increasing risk of a global recession also weighed on sentiment.

Reuters