Oil Prices Drop on Strong US Dollar, Weak Demand Outlook

By Adedapo Adesanya

Oil prices moderated by about 1 per cent on Friday on worries that a strong US Dollar and negative economic news from some parts of the world could hit global demand growth.

Consequently, Brent futures fell by 47 cents or 0.6 per cent to $85.24 per barrel and the US West Texas Intermediate (WTI) futures depreciated by 56 cents or 0.7 per cent to trade at $80.73 per barrel.

Prices declined despite signs of improving US oil demand and falling fuel inventories that helped boost crude prices to a seven-week high a day earlier.

For the week, both crude benchmarks were up about 3 per cent after gaining about 4 per cent last week.

The US Dollar rose to a seven-week high versus a basket of other currencies with the Federal Reserve’s patient approach to cutting interest rates contrasting with more dovish stances elsewhere.

In 2022 and 2023, the US central bank raised interest rates significantly to rein in a spike in inflation. Higher interest rates increase the cost of borrowing for both individuals and companies, which may impede economic expansion and lower the demand for oil.

A higher US Dollar may also lower the price of goods like oil that are valued in the greenback for holders of other currencies, thereby lowering the demand for oil.

The largest oil-consuming nation in the world saw a slight increase in economic activity in June, reaching a 26-month high on the back of a comeback in employment. However, pricing pressures significantly decreased, raising hopes that the current downturn in inflation would continue.

This month saw a severe slowdown in company growth inside the eurozone as demand decreased for the first time since February.

China, the second-largest oil consumer in the world, issued a warning, citing the possibility of a trade war as a result of growing tensions with the European Union over imports of electric vehicles.

Tensions in geopolitics rounded out the muddled picture as its Ukraine drones targeted radar sites, four oil refineries, and other military installations in Russia.

Also, the leader of Lebanon’s Hezbollah party threatened Cyprus, a member of the European Union, and promised to go to war with Israel if there was a cross-border battle.

As a result of severe rains shutting down a crucial pipeline and oil wells, the state-owned oil firm Petroecuador in Ecuador has declared a force majeure regarding the delivery of Napo heavy crude for export.