Oil prices saw a slight decline on Monday due to renewed concerns over prolonged higher interest rates, which strengthened the dollar, balancing the support from ongoing geopolitical tensions and OPEC+ supply cuts. Brent crude futures decreased by 3 cents, settling at $85.21 per barrel by 0632 GMT, following a 0.6% drop on Friday. Meanwhile, U.S. West Texas Intermediate (WTI) crude futures fell by 2 cents to $80.71 per barrel.
Tony Sycamore, a Sydney-based market analyst at IG, noted that the U.S. dollar strengthened following better-than-expected U.S. PMI data and political concerns ahead of the French election. A stronger dollar makes dollar-denominated commodities less attractive to holders of other currencies, affecting oil prices.
The dollar index, which measures the greenback against six major currencies, rose on Friday and continued to climb slightly on Monday after U.S. business activity hit a 26-month high in June, according to the purchasing managers index data.
Despite Monday’s dip, both benchmark crude contracts saw approximately a 3% increase last week, driven by signs of stronger demand for oil products in the U.S., the world’s largest oil consumer, and OPEC+ production cuts. U.S. crude inventories declined while gasoline demand increased for the seventh consecutive week, with jet fuel consumption returning to 2019 levels, according to ANZ analysts.
ING analysts, led by Warren Patterson, reported that speculators are increasingly optimistic about oil prospects as summer approaches, with net-long positions in ICE Brent rising. The analysts noted that they expect the oil market to tighten in the third quarter due to a deficit.
Geopolitical risks are also supporting oil prices, with the Gaza crisis and increased Ukrainian drone attacks on Russian refineries adding to market uncertainty. In Ecuador, Petroecuador, the state oil company, declared force majeure over Napo heavy crude deliveries for export following the shutdown of a key pipeline and oil wells due to heavy rains.
In the U.S., the number of operating oil rigs dropped by three to 485 last week, the lowest count since January 2022, according to a report from Baker Hughes. This reduction in operational rigs further highlights the tight supply dynamics influencing the oil market.
Overall, while higher interest rates and a stronger dollar are putting downward pressure on oil prices, supply constraints and geopolitical tensions continue to provide underlying support. The balance between these factors will be crucial in determining oil price trends in the coming weeks.
READ MORE: