Oil prices slip due in part to stronger dollar

London — Oil prices fell in a volatile market on Tuesday, as a stronger dollar and economic uncertainty offset the bullish affect of a price cap placed on Russian oil and prospects of a demand boost in China.

Brent crude futures fell 9c, or $1.09%, to $81.78 a barrel by 10.55am GMT. West Texas Intermediate crude (WTI) fell 79c, or $1.03%, to $76.14.

Earlier in the session, both contracts fell by more than $1 while Brent rose by over $1 in Asian trading.

Crude futures on Monday recorded their biggest daily drop in two weeks after US services industry data indicated a strong US economy.

The data reinforced the belief among investors that the Federal Reserve might stick longer with aggressive interest rate rises, supporting the dollar index on Tuesday.

A stronger greenback makes dollar-denominated oil more expensive for buyers holding other currencies, reducing demand for the commodity.

“Inflationary headwinds could still cause global economic turbulence in coming months,” said Tamas Varga of oil broker PVM, but added that “China’s gradual Covid-19 opening is a tentatively positive development”.

In China, more cities are easing Covid-19-related curbs, prompting optimism for increased demand in the world’s top oil importer.

The country is set to announce a further relaxation of some of the world’s toughest Covid-19 curbs as early as Wednesday, sources said.

The market was weighing the production affect of a price cap of $60 per barrel on Russian crude imposed by the Group of Seven (G7), the EU and Australia, contributing to market volatility.

The price cap comes on top of the EU’s embargo on imports of Russian crude by sea and similar pledges by the US, Canada, Japan and Britain.

Russia has declared its intention not to sell oil to anyone who signs up to the price cap.

The threat of losing insurance will limit Russia’s access to the tanker market and could reduce crude exports by 500,000 bpd from February levels, said analysts from Rystad Energy in a note.

Russias January-November oil and gas condensate rose 2.2% from a year earlier to 488 million tonnes, according to Deputy Prime Minister Alexander Novak, who expects a slight output decline following the latest sanctions. 

Reuters