Oil prices dropped on Tuesday morning as traders responded to news of a strengthening dollar and anticipated additional monetary tightening by the US Federal Reserve.
By 12:47 a.m. UAE time, the price of a barrel of Brent crude oil, the standard against which around 65 percent of all oil is traded, had dropped by 0.51 percent, to $83.64.
The price of a barrel of oil tracked by the West Texas Intermediate index increased by 0.56 percent, reaching $76.77.
According to Edward Moya, senior market analyst at Oanda, “there is undeniably more optimism around the Chinese economy, which will stimulate more demand this year, but at the same time, sentiment is cooling on the global economy as interest rates are projected to go a little higher than previously anticipated.”
“It was too much to expect for the inflation numbers to just retreat back without any obstacles along the road, so this quarter was always going to be one of large swings in emotion.”
U.S. economic statistics from the last week suggested that inflation was holding steady in the world’s biggest economy, arguing in favour of more interest rate hikes.
The Federal Reserve raised interest rates by 25 basis points earlier this month, the ninth hike since March 2022. It also raised the spectre of potential future rate hikes.
The Federal Reserve has set the goal range for interest rates at 4.5% to 4.75 %, which is roughly 50 basis points (bps) below the end-of-year prediction of 5.1 %.
The February minutes from the Federal Open Market Committee meeting are also expected to be released on Wednesday, which will be watched closely by the markets.
The US Dollar Index rose 0.19 percent to 104.06, reflecting a higher value for the dollar relative to a group of foreign currencies.
As the dollar strengthens, oil prices rise for those using foreign currencies.
The Energy Minister of Saudi Arabia stated on Monday that the Opec+ group of 23 oil-producing nations might revise its production strategy if market circumstances altered.
During a conference in the kingdom, Prince Abdulaziz bin Salman was quoted as saying, “We are flexible enough to change Opec+ choices if required.” This was according to a Bloomberg story.
The group decided at its summit this month to maintain the current output cuts of 2 million barrels per day.
If global economic prospects worsen, however, “diminishing optimism that Opec+ can maintain prices sustained wherever they want is waning,” as Mr. Moya put it.
“Opec+ will be playing catch-up to keep the market tight as long as supply seem adequate.”
According to the Joint Organisations Data Initiative, in December, global oil demand increased by 1.3 million bpd to achieve a record, spurred by higher consumption in Japan, Indonesia, and South Korea (Jodi).
However, Jodi reported that in the month of April, global oil output fell by 274,000 bpd to a five-month low due mostly to declines in the United States and the United Kingdom.
Even if there are ongoing problems for regional economies like China due to the slowing global momentum, the International Monetary Fund said on Tuesday that the lessening of economic headwinds was a promising indicator pointing to a better rebound in Asia this year.
The fund predicts that economic growth in the Asia-Pacific area would accelerate to 4.7% this year from 3.8% in 2022.
According to the International Monetary Fund’s (IMF) January Economic Forecast, global economic growth is projected to reach 2.9% this year, followed growth of 3.4% in 2022.
The American Petroleum Institute’s weekly report on US crude stocks is scheduled for release today.