Oil Rises as Dollar Strength Rises, But Fed Presses

Oil pump cranes at the Vaca Muerta oil and shale gas field in the Patagonian province of Neuquén, Argentina, Jan. 21, 2019. REUTERS/Agustin Markarian/File Photo

LONDON (Reuters) – Oil prices rose on Monday, supported by a weak US dollar and the strength of stock markets, in a session that swung between supply fears and expectations that a US interest rate hike would dampen fuel demand.

Brent crude futures for September settlement rose 68 cents, or 0.66 percent, to $103.88 a barrel by 1402 GMT, while US West Texas Intermediate crude futures rose 85 cents, or 0.9 percent, to $95.55 a barrel.

“A little weaker US dollar and improving stock markets are supporting oil,” UBS oil analyst Giovanni Stonovo said on Monday. (.stoxx)

Oil futures have been volatile in recent weeks as traders have tried to juggle the prospects of an interest rate hike, which could limit economic activity and thus reduce fuel demand growth, against a supply shortage from Russian crude trading disruptions due to Western sanctions amid the crisis. The conflict in Ukraine.

“Globally rising recession fears suggest that gains are likely to be limited in the short term, regardless of geopolitics,” said Jeffrey Haley, senior market analyst at OANDA.

Federal Reserve officials indicated that the central bank is likely to raise interest rates by 75 basis points at its meeting on July 26-27.

China, the world’s second-largest economy, did not experience a contraction in the second quarter, growing just 0.4% year-on-year. Read more

But the higher premium for the front month compared to the second month continues to indicate short-term supply tightness. The spread settled at $4.82/barrel on Friday, its highest level ever when excluding expiry-related rallies in the previous two months.

Libya’s National Oil Corporation said it aims to restore production to 1.2 million barrels per day within two weeks, from about 860,000 barrels per day.

But analysts expect Libyan production to remain volatile as tensions remain high after clashes between rival political factions at the weekend. Read more

Warren Patterson, President of Commodities, said the continued shortfall follows “expectations that Russian oil supplies will decline in the coming months, as widely expected plans to cap Russian oil prices may have a more adverse effect on oil prices than hoped”. Strategy at ING.

The European Union said last week that it would allow Russian state-owned companies to ship oil to third countries under an amendment to sanctions agreed by member states last week aimed at reducing risks to global energy security. Read more

But the governor of the Russian Central Bank, Elvira Nabiullina, said on Friday that Russia would not supply oil to countries that decided to impose a price ceiling on its oil. Read more

Additional reporting by Yuka Obayashi in Tokyo; Editing by David Evans, Louise Heavens and Thomas Janowski

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