Strong Dollar, Chinese Data Sink Oil Prices
By Adedapo Adesanya
Oil prices settled lower on Wednesday, pressured by a stronger US Dollar and weak data from top oil importer China that fed demand fears.
Brent crude futures closed lower by $1.11 to $72.60 a barrel, as the US West Texas Intermediate crude (WTI) fell by $1.37 to $68.09 per barrel.
The US Dollar index, which measures the greenback against six major peers, saw support from cooling European inflation and progress on a long-debated US debt ceiling bill, which will advance to the House of Representatives for debate.
House passage would send the bill to the Senate, where debate could stretch to the weekend, as a June 5 deadline looms.
A stronger US Dollar makes oil more expensive for buyers holding other currencies.
Prices were also affected as Chinese data showed manufacturing activity contracted faster than expected in May, as weakening demand cut the official manufacturing purchasing managers’ index (PMI) down to 48.8 from 49.2 in April.
US data showed job openings unexpectedly rose in April, pointing to persistent strength in the labour market that could push the Federal Reserve to raise interest rates when they meet June 13 -14.
Crude oil inventories in the United rose this week by 5.202 million barrels, the American Petroleum Institute (API) data showed on Wednesday.
It doesn’t fully offset the 6+ million barrel drop last week, meaning that the total number of barrels of crude oil gained so far this year is just over 40 million barrels.
This week, SPR inventory dropped for the ninth week in a row as another 2.6 million barrels of congressionally mandated crude oil was sold during the week ending May 26. There are now 355.4 million barrels—the lowest amount of crude oil in the SPR since September 1983.
The market will confirm the official figures when it is released by the Energy Information Administration (EIA) following delays caused by a national holiday.
The market will be watching out for the upcoming June 4 meeting of the Organisation of the Petroleum Exporting Countries and allies, including Russia, OPEC+.
Mixed signals by major producers on further production cuts have sparked volatility in oil prices as Saudi Arabia and Russia appear to be at loggerheads.
Saudi Arabia worries that Russia has not kept its promise to reduce oil production as pledged, complicating the Saudi efforts to lift oil prices to at least the Kingdom’s oil price breakeven level of $81 per barrel.
However, banks HSBC and Goldman Sachs and analysts do not expect OPEC+ to announce further cuts at this meeting.