Strong US Dollar, More Rate Hikes Weaken Oil Prices
By Adedapo Adesanya
Oil prices turned lower on Monday as the US Dollar strengthened and as investors mulled over a possible May interest rate hike by the US Federal Reserve.
Brent crude futures fell by $1.55 or 1.8 per cent to settle at $84.76 a barrel, while the US West Texas Intermediate (WTI) crude dropped $1.69 or 2.1 per cent to trade at $80.83 a barrel.
The US Dollar has been strengthening alongside interest rate hikes, making Dollar-denominated oil more expensive for holders of other currencies.
The US Dollar index gained around 0.6 per cent on Monday.
Traders are betting that the US Federal Reserve will raise its lending rate in May by another quarter of a percentage point.
Meanwhile, the release of China’s first-quarter gross domestic product (GDP) data is expected to be positive for prices.
This is coming after the International Energy Agency (IEA) forecast that the country will account for most of 2023 demand growth.
However, the IEA also warned in its monthly report that output cuts announced by the Organisation of the Petroleum Exporting Countries and its allies, OPEC+ risked worsening an oil supply deficit expected in the second half of this year.
The energy watchdog said this could hurt consumers and global economic recovery.
The Group of Seven (G7) coalition will reportedly keep a $60 per barrel price cap on Russian seaborne oil.
This is despite rising global crude prices and calls by some countries for a lower price cap to restrict oil revenues for Russia following its war on Ukraine.
Meanwhile, in Iraq, the federal government and the Kurdistan Regional Government (KRG) have ironed out technical issues essential to resuming northern oil exports from the Turkish port of Ceyhan to international markets.
Turkey halted Iraq’s 450,000 barrels per day of northern exports on March 25 after an arbitration ruling by the International Chamber of Commerce (ICC), which ordered Turkey to pay Iraq damages of $1.5 billion for the KRG’s unauthorised exports between 2014 and 2018.
The oil markets have also been oversupplied over the past few months thanks to overall weak demand following warmer-than-expected weather in Europe.