Strong Dollar, High Interest Rates Worries Weaken Oil Prices

By Adedapo Adesanya

Oil prices fell about 2 per cent on Monday as the US Dollar strengthened and traders took profits while the market remained concerned about rising crude supplies and pressure on demand from high-interest rates.

Brent crude lost $1.49 or 1.6 per cent to finish at $90.71 a barrel while the US West Texas Intermediate crude (WTI) depreciated by $1.97 or 2.2 per cent to settle at $88.82 per barrel.

Analysts said some traders took profits after crude prices rose nearly 30 per cent to 10-month highs in the third quarter, which wrapped up last week.

Prices are above levels where investors and speculators can take their profits and this could cease weighing on markets as the days pass.

Also, on Monday, the US Dollar index rose to a 10-month high against a basket of other currencies after the US government avoided a partial shutdown. Economic data fuelled expectations that the US Federal Reserve will keep rates higher longer, which could slow economic growth.

That dollar’s resurgence has been building for four weeks now, assisted by positive economic data, particularly in terms of September manufacturing recovery.

In terms of a government shutdown, on Saturday, US Congress succeeded in passing a stopgap funding bill, temporarily avoiding disaster.

With this, it becomes increasingly likely that the Federal Reserve will maintain higher interest rates further into the future.

Higher interest rates along with a stronger dollar, which makes oil more expensive for holders of other currencies, could dent oil demand.

In Europe, manufacturing data showed the eurozone, Germany, and Britain remained in a downturn in September.

In China, the world’s biggest oil importer, the World Bank maintained its forecast for 2023 economic growth at 5.1 per cent, but trimmed its prediction for 2024, citing persistent weakness of its property sector.

The market is expected to see more crude supply into the system as Turkey’s energy minister said the country will restart operations this week on a pipeline from Iraq that has been suspended for about six months.

Additionally, Saudi Arabia could start to ease its additional voluntary supply cut of 1 million barrels per day.

The Organisation of the Petroleum Exporting Countries (OPEC) plus Russia and other allies known as OPEC+, will meet on Wednesday, October 4 but is unlikely to tweak its current oil output policy.