In the early trading hours of Monday, oil prices faced downward pressure for the second consecutive session in Asian markets. This decline was primarily attributed to a strengthened U.S. dollar, which surged on the back of improved U.S. PMI (Purchasing Managers’ Index) data released late last week and concerns surrounding the upcoming French election. The stronger dollar makes commodities priced in dollars, such as oil, less attractive to investors holding other currencies, thereby exerting downward pressure on oil prices.
Brent crude futures, a global benchmark, dropped by 40 cents to $84.84 per barrel by 0036 GMT, following a 0.6% decline in the previous session. Similarly, U.S. West Texas Intermediate (WTI) crude futures fell by 39 cents to $80.34 per barrel, marking a 0.5% decrease.
Tony Sycamore, a markets analyst at IG based in Sydney, highlighted the impact of the stronger dollar on commodity markets. He noted that the dollar started the week on a firm footing due to positive economic data and political uncertainties, particularly surrounding the French elections. This macroeconomic backdrop contributed to a cautious investor sentiment, particularly in commodities.
Despite the recent declines, both Brent and WTI crude oil contracts posted gains of around 3% over the previous week. These gains were supported by signs of robust demand for oil products in the United States, the largest consumer of crude globally. ANZ analysts underscored positive developments in the U.S. energy market, reporting a decline in domestic crude inventories and a consistent increase in gasoline demand for the seventh consecutive week. Moreover, jet fuel consumption has rebounded to pre-pandemic levels seen in 2019, reflecting a recovery in air travel and bolstering demand for aviation fuel.
In addition to demand-side factors, geopolitical tensions in key oil-producing regions contributed to supporting oil prices. Ongoing conflicts, such as the Gaza crisis and intensified drone attacks on Russian refineries by Ukrainian forces, heightened supply concerns and added a risk premium to oil prices.
Further complicating supply dynamics, Ecuador’s state-owned oil company Petroecuador declared force majeure on Napo heavy crude oil exports. This decision was prompted by the shutdown of a critical pipeline and oil wells due to heavy rains, disrupting exports from the region.
Meanwhile, in the United States, the number of active oil rigs fell by three to 485 last week, marking the lowest level since January 2022. This decline in drilling activity suggests a cautious approach by U.S. producers amid volatile market conditions and regulatory uncertainties.
The combination of economic indicators, geopolitical developments, and supply dynamics continues to shape investor sentiment and price trends in the oil market. Investors and analysts alike remain vigilant about upcoming economic data releases and geopolitical events that could influence oil prices in the coming weeks.
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