Oil drops from multi-month highs as demand is hurt by a strong dollar

SINGAPORE: Following a day in which benchmarks surged to multi-month highs, traders withdrew some of their capital, and as a result, oil prices declined somewhat on Wednesday due to a stronger dollar and less investor appetite.

By 04:07 GMT, May delivery of Brent oil futures dropped 16 cents, or 0.2%, to $87.22 per barrel. US West Texas Intermediate futures for April delivery dropped 31 cents, or 0.4%, to $83.16 a barrel. These contracts expire on Wednesday. With 18 cents less, the more active May WTI contract was trading at $82.55 per barrel.
Independent analyst Tina Teng, who is based in Auckland, said that “profit-taking could be a reason for the downside movement today.” She also noted that indications of reduced supply and a stronger demand forecast have helped to underpin the current price gain.
The US dollar index increased for a sixth consecutive session, weighing on Asian buyer confidence as recent data indicated a robust US economy.
Demand is stifled when oil becomes more costly for investors holding foreign currencies due to a rising dollar.
Traders were waiting for clues about the Federal Reserve’s interest rate path for the remainder of the year in anticipation of the announcement later on Wednesday.
In the previous session, when market players evaluated the effect on oil and petroleum supply from Ukrainian drone assaults on Russian facilities, both Brent and WTI closed at their highest levels since late October.
In a note, ING analysts,, including Warren Patterson,, said, “Supply risks surrounding Russian refined products continue to provide support at a time when the market is set to tighten following the rollover of additional voluntary cuts from OPEC+ into 2Q24.”
Trade sources told Reuters on Tuesday that Russia’s crude oil exports had increased due to a reduction in the country’s refining capacity caused by the strikes.
According to them, oil shipments from Russia’s western ports would reach 2.22 million barrels per day in March, up about 260,000 barrels per day from the original monthly projection.
“If these disruptions are prolonged, it could eventually force Russian producers to reduce supply if they are unable to export all of this crude oil,” Patterson said.
“These attacks are more bullish for refined products in the immediate term.”
According to reports cited by the American Petroleum Institute, US distillate stocks increased last week while crude oil and gasoline stockpiles decreased. Experts surveyed by Reuters predicted that last week’s gains in inventories would be around 10,000 barrels. [S/API]
The US Energy Information Administration is expected to release official inventory numbers on Wednesday at 1430 GMT.