Oil Prices Ease on Strong Dollar, Mixed Global Economic News

Crude Prices Decline Amid Global Demand Concerns

By Scott DiSavino

Crude prices fell by approximately 1% on Friday, driven by concerns that a strong U.S. dollar could dampen global oil demand growth, compounded by negative economic developments in several regions.

Despite evidence of rising U.S. oil demand and decreasing fuel inventories—factors that had previously pushed crude to a seven-week high—the markets experienced a decline. Futures for Brent crude dropped 47 cents (0.6%) to close at $85.24 a barrel, while U.S. West Texas Intermediate (WTI) crude settled 56 cents (0.7%) lower at $80.73.

This downturn marked the first time in four days that WTI moved out of technically overbought territory, while Brent futures remained overbought for the fourth consecutive day, a streak not seen since early April. Over the week, both crude benchmarks experienced an increase of about 3%, following a prior rise of around 4%.

The U.S. dollar reached a seven-week high against a basket of other currencies as the Federal Reserve’s cautious stance on interest rate cuts stood in contrast to more dovish positions from other central banks. The Fed had significantly raised interest rates in 2022 and 2023 to combat soaring inflation, leading to higher borrowing costs for consumers and businesses, which can hinder economic growth and reduce oil demand.

Additionally, a stronger U.S. dollar can lessen oil demand by making dollar-denominated commodities, such as oil, more expensive for buyers holding other currencies.

In the United States, business activity increased to a 26-month high in June, aided by a rebound in employment, while inflationary pressures appeared to be easing. However, existing home sales declined for the third straight month in May due to record-high prices and rising mortgage rates, which have deterred potential buyers.

Recent data from the U.S. Energy Information Administration indicated a rise in total product supplied, a measure of oil demand, which increased by 1.9 million barrels per day last week, totaling 21.1 million barrels per day. Despite the drop in crude prices, U.S. gasoline futures rose for a fourth day, reaching a one-month high due to increased demand during the summer driving season and a reduction in inventories.

Diverse Signals in Global Demand

In India, refiners processed nearly 1.3% more crude in May compared to a year earlier, with the share of Russian oil supplies in India’s imports rising. Analysts from ANZ Research noted that indications of stronger demand in Asia contributed to positive sentiment, as refineries in the region resumed operations following maintenance.

Conversely, in the eurozone, business growth sharply decelerated this month, with a decline in demand reported for the first time since February. Meanwhile, in China, escalating tensions with the European Union over electric vehicle imports raised concerns of a possible trade war.

Compounding these variable economic signals are geopolitical tensions. Ukraine’s military reported drone strikes targeting four oil refineries and military facilities in Russia. Additionally, the leader of Hezbollah in Lebanon vowed to engage in conflict with Israel if tensions escalate, while also threatening Cyprus for the first time.

In Ecuador, Petroamazonas, the state oil company, declared force majeure on heavy crude deliveries due to heavy rains causing significant disruptions to a key pipeline and oil wells.