The rising dollar lowers oil costs

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17th June2021

By: Norvisi Mawunyegah

Oil prices fell on Thursday as the US dollar strengthened, knocking them off multiyear highs, although losses were restrained by a significant reduction in US oil stocks.

Brent futures fell 33 cents, or 0.4 percent, to $74.06/bbl. at 8.36 a.m. GMT, after touching their highest level since April 2019.

Similarly, after reaching their highest level since October 2018, US crude futures fell 28 cents, or 0.3 percent, to $71.87/bbl.

After the Federal Reserve said it may hike interest rates at a far quicker pace than expected, the dollar surged to its highest single-day gain in 15 months. Oil, which is priced in dollars, becomes costlier in foreign currencies when the greenback strengthens, thereby lowering demand.

“Energy markets became so fixated over a robust summer travel season and Iran nuclear deal talks that they somewhat got blindsided by the Fed’s hawkish surprise,” said Edward Moya, senior market analyst at OANDA.

“This pullback in oil prices should be temporary as the fundamentals on both the supply and demand side should easily be able to compensate for a rebounding dollar,” Moya said.

Still, losses were modest, since data from the Energy Information Administration revealed that US crude oil stocks fell substantially last week as refineries increased operations to their highest level since January 2020, indicating that demand is improving. Refinery throughput in China, the world’s second-largest oil consumer, increased by 4.4 percent in May compared to the same month a year ago, reaching a new high. The world’s largest oil dealers indicated this week that they anticipate prices to continue over $70 per barrel in the second half of 2022, with demand likely to rebound to pre-pandemic levels.