Oil prices experienced a decline of over 1% on Monday with concerns centered around China’s struggling economic recovery and a strengthening U.S. dollar.
Despite the recent seven weeks of gains attributed to supply tightening resulting from OPEC+ output cuts, this downward trend was notable.
Brent crude oil, against which Nigerian oil is priced, declined by $1.07 or 1.2% to $85.74 per barrel while the U.S. West Texas Intermediate crude oil declined by 1.3% to $82.12 per barrel.
This decline was partly attributed to the U.S. dollar index gaining ground, driven by slightly larger increases in U.S. producer prices during July. This led to higher Treasury yields, even though the Federal Reserve’s stance on interest rate hikes was anticipated to be nearing an end.
The stronger dollar is a key factor impacting oil demand, making the commodity more expensive for buyers using other currencies.
“Crude has been in overbought territory for some time now, defying expectations of a correction. It has been singularly focused on U.S. economic optimism, to the exclusion of the increasingly stronger headwinds blowing in the eurozone and China,” said Vandana Hari, founder of oil market analysis provider Vanda Insights.
Oil may remain range-bound this week due to China’s sluggish economic recovery and the robust U.S. dollar, but OPEC+ has signaled its commitment to taking necessary actions to stabilize markets and tighten supply.
Saudi Arabia and Russia, part of the OPEC+ alliance, are anticipated to continue supply cuts, which could lead to further erosion of oil inventories, according to the International Energy Agency’s monthly report.
The recent price spread between first- and second-month Brent remained steady on Monday, indicating a notable focus on tightening supply. Furthermore, geopolitical tensions heightened as a Russian warship fired warning shots at a cargo ship in the Black Sea, impacting commodities exports from Ukraine and Russia.
In the United States, the number of active oil rigs remained unchanged at 525 in the past week after experiencing eight consecutive weeks of decline, according to the Baker Hughes weekly report.