Oil prices fell on Thursday as the US dollar strengthened after signs that the US Federal Reserve would tighten monetary policy at the world’s largest oil user.
Futures pulled back after a broad fall in financial markets triggered by the Fed’s mentioned March rate hike and the dollar’s rise against its leading peers. When the dollar appreciates, dollar-denominated oil becomes more expensive for buyers using other currencies.
Brent crude futures which first fell as much as 1.1% to $89, fell 57 cents, or 0.9%, to $89.18 a barrel at 0440 GMT. Brent rose 2% on Wednesday.
West Texas Intermediate (WTI) crude futures fell 83 cents, or 0.9%, to $86.52 a barrel, after falling as much as 1.2% to $86.34. WTI gained 2% in the previous session.
The dollar rose on higher US Treasury yields and pushed the US dollar index, which measures the dollar’s value against its leading peers, to 96,604, near five-week highs.
Crude oil prices rose Wednesday with the tensions between Ukraine and the world’s second-largest oil producer Russia, that might cut energy supplies in Europe, and the Brent oil rose to $90 a barrel for the first time in seven years.
The fact that the Omicron coronavirus variant did not affect oil demand as badly as initially feared and that the OPEC+ producer group failed to meet the production targets of some members in increasing supply were factors that supported the increase in prices.
OPEC+ gradually eased 2020’s production cuts as it rebounded from the demand collapse. But some small producers are unable to increase supply, and others are wary of pumping too much in case of renewed COVID-19 disruptions.
OPEC missed its planned supply increase target in December amid capacity constraints that were limiting supply as global demand recovered from the COVID-19 pandemic.
Ongoing supply difficulties and escalating Russia-Ukraine tensions continue to support crude oil prices. It dropped a bit today, but it’s considered a technical move.
Rising stockpiles of crude oil and gasoline in the United States eased some of the concerns about supply.
Crude oil inventories rose 2.4 million barrels to 416.2 million barrels on Jan. 21, compared to analysts’ expectations for a decline of 728,000 barrels, the Energy Information Administration (EIA) said on Wednesday.
The EIA said gasoline inventories rose 1.3 million barrels last week to 247.9 million barrels, the highest since February 2021.