Crude oil prices fell today, Thursday, as the US dollar rose after the Federal Reserve hinted that it may raise interest rates faster than expected, but losses were limited thanks to a significant decrease in US crude stocks.
Brent crude futures fell about $2, or 3%, to $72.10 a barrel during trading, after hitting their highest levels since April 2019 in the previous session.
And US crude futures fell by about two dollars, or 2.76%, to $ 70.16 a barrel, after hitting their highest levels since October 2018, the day before.
“Energy markets have become so revolved around a strong summer travel season and Iran nuclear deal talks that they have been shocked by the Fed’s surprisingly tighter inclination,” said Edward Moya, senior market analyst at OANDA.
The US dollar recorded its strongest daily gain in 15 months after the Federal Reserve hinted that it may raise interest rates faster than originally assumed.
The rise of the US dollar increases the cost of oil priced in the US currency to holders of other currencies, which may put pressure on demand.
But oil price losses were limited, as data from the US Energy Information Administration showed that crude oil stocks in the world’s largest consumer fell sharply last week as refineries boosted operations to their highest levels since January 2020, indicating continued improvement in demand.
Prices also received support, as refinery consumption of crude in China, the second largest oil consumer in the world, increased by 4.4% in May compared to the same month a year ago, reaching a record high.
However, the oil market continues to show signs of strength as the epidemic subsides. A US government report showed that domestic crude stocks fell last week with the increase in movement. On the other hand, Saudi Energy Minister Prince Abdulaziz bin Salman said in a conference that the cautious approach taken by “OPEC +” to revive supplies is bearing fruit, noting that he “sticks to this position.”
meeting in july
Oil has risen this year, with West Texas Intermediate crude reaching its highest level since 2018 earlier this week, as the spread of Covid-19 vaccines clears the way for the lifting of restrictions imposed to cordon off the pandemic. Even with consumption picking up and inventories drawn, the Organization of the Petroleum Exporting Countries (OPEC) and its allies have brought back only a small portion of supplies pulled from the market last year to save prices. The next coalition will meet on July 1 to set the strategy.
“We initially thought oil would hit $70 a barrel, but now it looks like $80 a barrel during the third quarter is possible,” said Sophro Sarkar, energy analyst at DBS Bank Ltd, citing strong demand as economies open up.
He added, “The Fed’s move is likely to affect other commodities more than oil,” according to Bloomberg.
There were also bullish signals from the leading economies in Asia. In India, which has suffered a brutal wave of coronavirus infections, sales of road fuel rebounded in the first half of June. Meanwhile, fuel prices in China, which has largely contained the outbreak, hit a record high last month.
In the United States, domestic crude stocks fell for a fourth week, with states including California easing restrictions and cases of the virus falling. At the largest supply center in Cushing, Oklahoma, stocks fell to their lowest levels since March 2020.
Citigroup Inc said in a note that the outlook “remains constructive over the coming months, as pent-up demand is likely to push global oil demand to new highs this summer.” Brent prices can go up to over $80.