The global oil market is currently experiencing a downward trend, with oil prices decreasing due to concerns over higher interest rates and a strengthened US dollar. This development has offset the support provided by geopolitical tensions and supply cuts implemented by the Organization of the Petroleum Exporting Countries (OPEC) and its allies.
As of 0632 GMT, Brent crude futures had slipped by 3 cents to $85.21 per barrel, following a 0.6% decline on Friday. Meanwhile, US West Texas Intermediate crude futures were valued at $80.71 per barrel, down 2 cents.
The US dollar has gained strength following the release of better-than-expected US purchasing managers index (PMI) data on Friday night, coupled with political concerns ahead of the French election. A stronger US dollar makes dollar-denominated commodities less attractive to holders of other currencies.
Despite this, both benchmark crude contracts gained approximately 3% last week, driven by signs of stronger oil products demand in the US, the world’s largest consumer, and supply constraints imposed by OPEC+ cuts.
According to analysts, US crude inventories have decreased, while gasoline demand has risen for the seventh consecutive week, and jet fuel consumption has returned to 2019 levels. Speculators have also become more optimistic about oil prices heading into summer, increasing their net-long positions in ICE Brent, as reported by ING analysts led by Warren Patterson.
Geopolitical risks in the Middle East, stemming from the Gaza crisis and increased Ukrainian drone attacks on Russian refineries, are also contributing to the upward pressure on oil prices. In Ecuador, state oil company Petroecuador has declared force majeure over deliveries of Napo heavy crude for exports, following the shutdown of a key pipeline and oil wells due to heavy rains.
In the US, the number of operating oil rigs has fallen to its lowest level since January 2022, according to a report by Baker Hughes on Friday.
What They Are Saying:
“The US dollar has opened bid this morning and appears to have broken higher following better US PMI data on Friday night and political concerns ahead of the French election,” said Tony Sycamore, a Sydney-based markets analyst at IG.
“We remain supportive towards the oil market with a deficit over the third quarter set to tighten the oil balance,” said ING analysts led by Warren Patterson.
Why It Matters:
The fluctuations in oil prices have significant implications for the global economy, influencing inflation, trade balances, and economic growth. As the world’s largest consumer of oil, the US is particularly vulnerable to changes in oil prices, which can impact consumer spending, business investment, and overall economic activity.