By Adedapo Adesanya
Oil closed lower on Tuesday as cooling expectations of interest rate cuts pushed the Dollar up while worries about weather disruption to production hubs in the United States waned.
Brent crude futures fell by 19 cents or 0.2 per cent to $77.96 a barrel and the US West Texas Intermediate (WTI) crude futures lost 56 cents or 0.8 per cent to settle at $72.12 per barrel. The US markets were closed for a public holiday on Monday.
The US Dollar hit a one-month high as investors reduced expectations of an interest rate cut by the US Federal Reserve in March.
The Dollar index, which tracks the greenback against a basket of currencies of other major trading currencies, was up 0.73 per cent at 103.38, after climbing as high as 103.42, its highest level since December 13.
The stronger greenback dented demand for Dollar-denominated oil among buyers using other currencies.
Severe weather conditions have cut oil production significantly in the American shale patch, with power outages, refinery shutdowns, and production stoppages taking hundreds of thousands of barrels offline.
However, forecasts for warm weather later in January in the major US production hubs also weighed on prices after meteorologists projected weather in the US. Lower 48 states would switch from colder than normal this week to mostly warmer than normal from January 22 – 31.
Prices drew support from signs of escalating tensions in the Middle East, as the US military carried out a new strike in Yemen against four Houthi anti-ship ballistic missiles. Houthi attacks on Red Sea shipping have been disrupting the global movement of goods through the key trading route.
The largest shipping and tanker industry groups advised on Friday members to stay away from the Bab el-Mandeb Strait while shippers were diverting transit away from the Red Sea en masse again but more than 100 ships, including oil tankers, have crossed the water lane since the warning to steer clear of the route.
Market analysts noted that the tensions in the Middle East are rising so the geopolitical risk premium in oil prices should be rising as well.
Concerns of the conflict spreading throughout the region grew on Tuesday, as Iran’s striking of targets in the semi-autonomous Kurdistan region of Iraq triggered a diplomatic dispute.
Iran also attacked Islamic State positions in Syria but despite the escalation, oil traders appear to be waiting for hard evidence of supply disruption before they push prices higher.
