Oil dips as bullish dollar and recession fears offset gains over Russian cuts
The greenback hovered near a seven-week peak after strong US economic data reinforced the view that rates will rise more and for longer
27 February 2023 - 07:39
byMohi Narayan and Sudarshan Varadhan
Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
A gas flare burns at an oil refinery in Russia. Picture: BLOOMBERG
New Delhi/Singapore — Oil prices inched lower in volatile trade on Monday, as a stronger dollar and fears of recession risks offset gains arising from Russia’s plans to deepen oil supply cuts.
West Texas Intermediate US crude futures (WTI) traded at $76.09 a barrel, 23c, or 0.3% lower, while Brent crude futures were down 30c, or 0.36%, at $82.86 a barrel at 6.11am.
Both benchmarks closed more than 90c higher on Friday.
The dollar hovered near a seven-week peak on Monday after a slew of strong US economic data reinforced the view that the Federal Reserve will have to raise interest rates further and for longer.
A firm dollar makes commodities priced in the US currency more expensive for holders of other currencies.
“Crude continues to take direction from the sentiment in the broader financial markets,” said Vandana Hari, founder of oil market analysis provider Vanda Insights.
Fears of a hawkish Fed returned to the fore on Friday after the personal consumption expenditures (PCE) price index, shot up 0.6% last month after gaining 0.2% in December.
“If risk-aversion continues to grow, crude is likely to come under renewed pressure,” said Hari.
Adding to the downside pressure, US crude oil inventories surged to the highest level since May 2021 last week, data from the Energy Information Administration (EIA) showed.
Exceeding cuts
“The EIA data continue to raise more questions instead of providing clarity on markets,” analysts at the consultancy Energy Aspects said in a note, referring to the steep supply adjustment in the data that contributed to the build.
On supply side, Russia plans to cut oil exports from its western ports by up to 25% in March vs February, exceeding its previously announced production cuts of 5% of its output during the month.
Oil prices have fallen by about a sixth in the year since February 24, 2022, when Russian troops first marched into Ukraine.
Russia halted supplies of oil to Poland via the Druzhba pipeline, the CEO of Polish refiner PKN Orlen said on Saturday, a day after Poland delivered its first Leopard tanks to Ukraine.
Two weeks after the invasion, prices surged to a record high of nearly $128 a barrel over supply concerns but have since cooled over fears of a global economic slowdown.
Separately, investors are bracing for China’s manufacturing surveys this week for a clear direction on oil demand. China is holding its annual parliamentary meeting from this weekend and will see new economic policy targets and policies.
“We expect the government to reiterate the priority of supporting growth and call for more policy support,” Ning Zhang, senior China economist at UBS Investment Bank, said in a note.
Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
Oil dips as bullish dollar and recession fears offset gains over Russian cuts
The greenback hovered near a seven-week peak after strong US economic data reinforced the view that rates will rise more and for longer
New Delhi/Singapore — Oil prices inched lower in volatile trade on Monday, as a stronger dollar and fears of recession risks offset gains arising from Russia’s plans to deepen oil supply cuts.
West Texas Intermediate US crude futures (WTI) traded at $76.09 a barrel, 23c, or 0.3% lower, while Brent crude futures were down 30c, or 0.36%, at $82.86 a barrel at 6.11am.
Both benchmarks closed more than 90c higher on Friday.
The dollar hovered near a seven-week peak on Monday after a slew of strong US economic data reinforced the view that the Federal Reserve will have to raise interest rates further and for longer.
A firm dollar makes commodities priced in the US currency more expensive for holders of other currencies.
“Crude continues to take direction from the sentiment in the broader financial markets,” said Vandana Hari, founder of oil market analysis provider Vanda Insights.
Fears of a hawkish Fed returned to the fore on Friday after the personal consumption expenditures (PCE) price index, shot up 0.6% last month after gaining 0.2% in December.
“If risk-aversion continues to grow, crude is likely to come under renewed pressure,” said Hari.
Adding to the downside pressure, US crude oil inventories surged to the highest level since May 2021 last week, data from the Energy Information Administration (EIA) showed.
Exceeding cuts
“The EIA data continue to raise more questions instead of providing clarity on markets,” analysts at the consultancy Energy Aspects said in a note, referring to the steep supply adjustment in the data that contributed to the build.
On supply side, Russia plans to cut oil exports from its western ports by up to 25% in March vs February, exceeding its previously announced production cuts of 5% of its output during the month.
Oil prices have fallen by about a sixth in the year since February 24, 2022, when Russian troops first marched into Ukraine.
Russia halted supplies of oil to Poland via the Druzhba pipeline, the CEO of Polish refiner PKN Orlen said on Saturday, a day after Poland delivered its first Leopard tanks to Ukraine.
Two weeks after the invasion, prices surged to a record high of nearly $128 a barrel over supply concerns but have since cooled over fears of a global economic slowdown.
Separately, investors are bracing for China’s manufacturing surveys this week for a clear direction on oil demand. China is holding its annual parliamentary meeting from this weekend and will see new economic policy targets and policies.
“We expect the government to reiterate the priority of supporting growth and call for more policy support,” Ning Zhang, senior China economist at UBS Investment Bank, said in a note.
Reuters
Asian stocks sink to two-month lows as markets brace for rates hikes
MARKET WRAP: JSE and rand weaken after SA is greylisted by FATF
Oil prices lift, due in part to possible lower exports from Russia
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.
Most Read
Related Articles
Russia halts pipeline oil to Poland
Oil prices lift, due in part to possible lower exports from Russia
Oil prices stem Wednesday’s losses
Published by Arena Holdings and distributed with the Financial Mail on the last Thursday of every month except December and January.