Oil Market Opens Weak on Stronger US Dollar
By Adedapo Adesanya
The crude oil market was bearish on Monday, falling more than one per cent as a rise in the US Dollar weakened appetite for the commodity.
As a result, the Brent went down by 1.81 per cent or $1.36 to sell at $74.01 per barrel, while the West Texas Intermediate (WTI) declined by $1.57 or 2.18 per cent to trade at $70.40 per barrel.
The greenback started the week on the front foot, trading at its highest for three weeks.
This is happening as investors fear the fallout from the developing situation in China, where Evergrande, one of the country’s largest construction firms, is at risk of defaulting on debt repayments, triggering a bout of risk aversion in the financial markets and driving demand for the safe-haven Dollar.
Evergrande Group, China’s second-biggest property developer by sales, has come under increasing scrutiny in recent months as the company grapples with a severe liquidity crisis due to a mounting debt pile.
Evergrande has a staggering $300 billion in outstanding debt and its potential failure risks setting off a chain reaction in China and overseas markets.
As a result, the Dollar got a lift with the Dollar index – a measure of the currency against a basket of six major rivals (Euro, Swiss Franc, Japanese Yen, Canadian Dollar, British Pound, and Swedish Krona) by 0.1 per cent at 93.247 after trading as high as 93.453.
A stronger dollar can be a headwind for commodities priced in the unit, making them more expensive to users of other currencies.
Traders will also be on alert for clues to the timing of the US Federal Reserve’s plan to eventually begin tapering its monthly bond purchases. Fed policymakers begin a two-day policy meeting on Tuesday, September 21.
The market may yet gain support from signs that some US Gulf output will stay offline for months due to storm damage.
The Bureau of Safety and Environmental Enforcement (BSEE) estimated less than 30 per cent of Gulf crude production, equal to around 422,000 barrels a day, remained shut in.
The slow return of crude output was seen helping lift prices in recent weeks, though the pace of the recovery picked up last week.
Analysts noted that if production continues to normalize at the pace it did last week, the market may not see the outage of up to 30 million barrels that was forecast.
They also estimated the lost production will remove 200,000 to 250,000 barrels per day of Gulf of Mexico oil supply for several months. The Gulf contributes about 16 per cent of US oil production or 1.8 million barrels per day.