By Adedapo Adesanya
Oil prices fell more than one per cent from their highest level in years on Thursday as the Dollar strengthened after the United States Federal Reserve signalled it might raise interest rates as soon as 2023.
The price of the international benchmark, Brent crude futures, dropped $1.31 or 1.76 per cent to trade at $73.08 per barrel while the United States’ benchmark, West Texas Intermediate (WTI) crude futures, lost $1.61 or 1.87 per cent to sell at $71.05 per barrel.
The US Dollar strengthened to its highest since in two months against a basket of other currencies after the US Federal Reserve hinted that it might raise interest rates at a much faster pace than assumed.
Fed officials projected an accelerated timetable for rate increases, began talks on how to end emergency bond-buying and said the COVID-19 pandemic was no longer a core constraint on the commerce of the largest economy in the world.
This led the Dollar Index, which tracks the greenback against six major currencies, to rise by 0.53 per cent at 91.892, its highest since mid-April.
A stronger dollar makes oil more expensive in other currencies, which could dent demand.
Another factor for the poor performance of the crude oil was the worries, which resurfaced after new coronavirus cases jumped in Britain.
The country reported its biggest daily rise in new cases of COVID-19 since February 19 on Thursday, according to government figures which showed 11,007 new infections, up from 9,055 the day before.
Analysts worry that this could affect demand as the surge in COVID cases in one of the best performing economies despite rapid vaccinations will raise many alarms over how quickly the rest of Europe will reopen.
The spread of the more infectious Delta variant of the disease, first identified in India, prompted Prime Minister Boris Johnson on Monday to postpone a planned easing of social-distancing rules that had been due for June 21.
Meanwhile, the market is still dealing with supply concerns over the return of Iranian barrels. Indirect talks between Iran and the US on reviving the 2015 Iran nuclear deal have come closer than ever to an agreement, but essential issues remain to be negotiated.
The delay is happening as the country heads to the presidential polls on Friday, June 18. The outcome of today’s presidential elections in Iran is also likely to lend support to the oil price depending on who emerges as the winner.
If successful with the talks and sanctions are lifted, the recovering market will have to contend with an additional one to two million barrels of oil.
Modupe Gbadeyanka