Oil Slides 1% as Stronger Dollar Outweighs Bullish Disruption Factors

By Adedapo Adesanya

Oil prices lost more than one per cent as a stronger US Dollar outweighed a high number of bullish news that normally would support the market.

This weakened the Brent crude by $1.26 or 1.43 per cent to $86.83 per barrel and softened the West Texas Intermediate (WTI) by $1.54 or 1.81 per cent to $83.60 per barrel.

The American Dollar rose to a two-week high on Monday against a basket of currencies, lifted by the tension between Russia and the West over Ukraine and the possibility of a more aggressive stance from the Fed this week.

A stronger dollar makes oil buying more expensive for holders of other currencies as the rising greenback thus reversed oil’s earlier gains.

This is happening over the possibility of quicker than expected increases to interest rates by the US Federal Reserve.

Crude prices started Monday higher, amid heightened geopolitical tensions over Ukraine and in the Middle East.

Early on Monday, the United Arab Emirates (UAE) said it had intercepted two ballistic missiles that were targeting Abu Dhabi. This took place a week after the Iran-aligned Houthis attacked targets in the UAE with drones, which claimed three lives.

In a statement, the UAE defence ministry affirmed on Monday its full readiness to deal with any threats, adding that it would “take all necessary measures to protect the UAE from any attacks.”

Tensions in Ukraine have been increasing for months after Russia massed troops near its borders, fuelling fears of supply disruption in Eastern Europe.

Aside from the geopolitical tensions, the oil market looks tighter than previously expected, with resilient demand and struggle by the Organisation of the Petroleum Exporting Countries and allies (OPEC+) to add as much production as its monthly quota allows.

Analysts note that if the factors, which apparently will be short-lived, fade away, crude prices will push upward with Brent hitting as much as $90 to $100 per barrel.

Barclays Bank raised its average oil price forecasts by $5 a barrel for this year, citing shrinking spare capacity and elevated geopolitical risks.

The bank raised its 2022 average price forecasts to $85 and $82 a barrel for Brent and WTI respectively.