Oil prices saw a modest decline on Wednesday, influenced by various factors including a strengthening U.S. dollar and profit-taking by investors following a recent rally to multi-month highs. Brent crude futures for May delivery edged down by 16 cents to settle at $87.22 a barrel, while U.S. West Texas Intermediate (WTI) futures for April delivery, set to expire on Wednesday’s settlement, fell by 31 cents to close at $83.16 a barrel. The more actively traded May WTI contract was priced at $82.55 a barrel, down by 18 cents.
The dip in oil prices was attributed to profit-taking, as investors took the opportunity to lock in gains following the recent surge in prices. This surge was fueled by an optimistic outlook for demand recovery and signs of supply constraints. Analysts noted that the market sentiment had been buoyed by expectations of increasing demand as economies reopened amid easing COVID-19 restrictions. Additionally, supply concerns stemming from geopolitical tensions, particularly in Ukraine, had contributed to the bullish sentiment in oil markets.
However, the strengthening of the U.S. dollar added downward pressure on oil prices. The U.S. dollar index, which measures the value of the dollar against a basket of major currencies, had risen for the fifth consecutive session. A stronger dollar makes commodities priced in dollars, such as oil, more expensive for holders of other currencies, dampening demand and weighing on prices.
Investors also awaited the Federal Reserve’s interest rate announcement later in the day, seeking insights into the central bank’s monetary policy stance and its potential impact on financial markets, including commodities like oil.
The recent rally in oil prices had been driven partly by concerns over disruptions to Russian refining capacity caused by Ukrainian drone attacks on Russian refineries. These attacks raised concerns about potential disruptions to crude oil and petroleum product supplies, contributing to supply fears in the market.
Despite the decline in oil prices on Wednesday, analysts remained cautious about the outlook, noting ongoing uncertainties surrounding global supply and demand dynamics. The market continued to monitor developments in geopolitical hotspots and the progress of vaccination campaigns worldwide, as these factors could influence oil prices in the coming weeks and months. Additionally, official inventory data from the U.S. Energy Information Administration, released later in the day, provided further insights into supply and demand fundamentals in the oil market.