Stronger US Dollar Drags Crude Oil Prices Downward

By Adedapo Adesanya

Crude oil prices slid more than 1 per cent on Thursday after solid economic data from the United States spurred the Dollar to reach a two-month high.

Brent futures fell by $1.10 or 1.4 per cent to $75.86 per barrel, while the US West Texas Intermediate (WTI) crude depreciated by 97 cents or 1.3 per cent to settle at $71.86 a barrel.

Positive data from the world’s largest economy raised expectations that the US Federal Reserve could raise interest rates again in June, giving a boost to the American currency.

A stronger Dollar can weigh on oil demand by making the fuel more expensive for holders of other currencies.

Despite straight months of slowing US inflation, it does not seem to be cooling fast enough to allow the Federal Reserve to pause its interest-rate hike campaign.

Remarks from Dallas Federal Reserve Bank President Lorie Logan and St. Louis Fed President James Bullard hint there may be another hike at the next policy meeting on June 13-14.

High-interest rates boost borrowing costs, which can slow the economy and reduce oil demand.

In addition, discussions about the debt ceiling negotiations have strengthened the market.

President Joe Biden and top US congressional Republican Kevin McCarthy on Wednesday underscored their determination to reach a deal to raise the federal government’s $31.4 trillion debt ceiling.

The US government could run out of money to pay its bills as soon as June 1.

US Vice President Kamala Harris and Biden’s top economic adviser, Lael Brainard, said a debt default would throw the economy into a recession.

Meanwhile, the European Central Bank (ECB) said it could keep raising interest rates further to bring inflation back to its mid-term goal of 2 per cent though most of the tightening has already been done.

Also weighing on oil prices, China’s industrial output and retail sales growth undershot forecasts, suggesting the economic recovery is losing momentum.

A fire at the Salina Cruz refinery belonging to Mexican state oil company Pemex was kept under control, the company said in a tweet on Thursday, adding an emergency plan had been put in place to tame the blaze.

Workers were evacuated, and no people were no injured.

However, there was no impact on production from the refinery, which has the capacity to produce 330,000 barrels per day of crude.