Oil drops more than 1% on demand concerns, dollar strength

Crude oil storage tanks are seen in an aerial view of the Cushing Oil Center in Cushing, Oklahoma, US, April 21, 2020. Reuters/UAV Base

LONDON (Reuters) – Oil fell more than 1% on Monday, weighed by expectations of weak global demand and a stronger US dollar ahead of a possible interest rate hike, although supply concerns limited the decline.

Central banks around the world are sure to increase borrowing costs this week, and there is some risk of a 1 percentage point rise by the US Federal Reserve.

“The next meeting of the Fed and a strong dollar are keeping a lid on prices,” said Tamas Varga of BVM oil brokerage.

Brent crude for November delivery fell $1.17, or 1.3 percent, to $90.18 by 0822 GMT. US West Texas Intermediate (WTI) for October fell $1.14, or 1.3%, to $83.97.

A British public holiday at Queen Elizabeth’s funeral was expected to limit activity. Read more

Oil rallied in 2022, with Brent crude nearing an all-time high of $147 in March after Russia’s invasion of Ukraine exacerbated supply concerns. Since then, concerns about weak economic growth and demand have driven prices down.

The dollar remained near a two-decade high ahead of this week’s decisions by the Federal Reserve and other central banks. A strong dollar makes dollar-denominated commodities more expensive for holders of other currencies and tends to affect oil and other risky assets.

Oil has also come under pressure from weak demand forecasts, such as last week’s forecast from the International Energy Agency that the fourth quarter will see zero demand growth. Read more

Despite these concerns, supply concerns kept the decline in check.

“The market still has European sanctions on Russian oil hanging on it. With supply disruptions in early December, the market is unlikely to see any quick response from US producers,” ANZ analysts said.

Analysts said the easing of COVID-19 restrictions in China, which has dampened demand expectations in the world’s second-largest energy consumer, could provide some optimism. Read more

Additional reporting by Florence Tan and Jeslyn Lear. Editing by Robert Persell

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