Oil Prices Ease as Dollar Strengthens and China’s Recovery Falters
By Florence Tan and Mohi Narayan
SINGAPORE/NEW DELHI, Aug 14 (Reuters) – Oil prices dipped on Monday as concerns over China’s struggling economic recovery and a stronger U.S. dollar offset seven weeks of gains driven by supply cuts from OPEC+.
Brent crude futures fell 73 cents, or 0.84%, to $86.08 a barrel by 0330 GMT, while U.S. West Texas Intermediate crude was at $82.48 a barrel, down 71 cents.
The decline in prices can be attributed to the strengthening U.S. dollar index and the slightly higher U.S. producer prices in July, which lifted Treasury yields. This had an impact on oil demand, as a stronger dollar makes the commodity more expensive for buyers using other currencies.
According to Vandana Hari, founder of oil market analysis provider Vanda Insights, crude prices have been in overbought territory but have been buoyed by U.S. economic optimism. However, she warned that headwinds from the eurozone and China could disrupt the current bullish trend.
“A rebalancing is overdue but it may need a reality check in the markets stateside,” Hari said.
While China’s sluggish economic recovery and the stronger U.S. dollar could put downward pressure on oil prices, OPEC+ has made it clear that it will take necessary measures to tighten supply and stabilize the markets, said CMC Markets analyst Tina Teng.
The International Energy Agency supported this view in its monthly report on Friday, stating that the ongoing supply cuts by Saudi Arabia and Russia, part of the OPEC+ alliance, will erode oil inventories throughout the rest of the year, potentially leading to higher prices.
Reflecting the tightening supply, the price spread between first- and second-month Brent contracts remained steady on Monday, after settling at 67 cents on Friday, its widest gap since March.
Meanwhile, tensions in the Black Sea escalated as a Russian warship fired warning shots at a cargo ship on Sunday. This area is crucial for commodities exports from Ukraine and Russia.
In the United States, the number of operating oil rigs held steady at 525 last week, following eight consecutive weeks of decline, according to Baker Hughes’ weekly report.
As the oil market continues to face various challenges and uncertainties, analysts will closely monitor economic developments and geopolitical tensions to determine future price movements.
(Reporting by Florence Tan in Singapore and Mohi Narayan in New Delhi; Editing by Sonali Paul and Tom Hogue)