Oil prices, which are on their way to end the week slightly behind most-year highs, fell for the second time on Friday as the US dollar rose on anticipation of a rate hike in the US, but it seems to close the week with little change.
Brent crude futures fell 45 cents, or 0.6%, to $72.63 as of 0700 GMT, extending Thursday’s 1.8% drop. The contract is on track to be stable throughout the week.
West Texas Intermediate (WTI) crude futures fell 33 cents, or 0.5%, to $70.71 a barrel after falling 1.5% on Thursday. WTI is heading towards a slight decline, which will be the first drop in four weeks.
On Wednesday, Brent hit its highest price since April 2019, while WTI hit its highest price since October 2018.
The dollar has skyrocketed in two sessions and oil’s short-term movement is related to the USD strength seen in the last two sessions after market watchers predicted possible rate hikes by the US Federal Reserve in 2023 sooner than expected. The rising dollar makes oil more expensive against other currencies, curbing demand. However, this situation is not expected to cause a major change in terms of supply/demand dynamics.
Contrary to the short-term outlook for demand growth as the COVID-19-related economic and business activity, restraint on land and air travel eases, the prospect of rate hikes has given rise to the outlook that could hurt oil demand in the long run. The point is, how much higher can interest rates go and how much room to move?
Adding to the negativeness affecting the oil price, talks between Tehran and Washington on Thursday to revive the 2015 Iran nuclear deal to be closer than ever to an agreement. Concerns grew that this would result in the US lifting sanctions and flooding the market with oil.
Even so, fundamentals suggest the market is tight.
A weather disturbance over the Gulf of Mexico could develop into a tropical storm by Friday, targeting the coasts of Louisiana and Mississippi, the U.S. National Weather Service said on Thursday.
Chevron Corp and Occidental Petroleum Corp said on Thursday they were withdrawing personnel and taking storm precautions at US Gulf of Mexico offshore facilities ahead of a possible tropical storm.