Oil Prices Dip 1% to $89.79 on Tuesday

Oil prices slipped 1% in early Asian trade on Tuesday, after falling to a three-week low in the previous session, on a stronger U.S. dollar, rising U.S. bond yields and mixed supply signals.

Brent crude oil, against which oil is priced, declined 92 cents or 1.01% to $89.79 a barrel while the U.S. West Texas Intermediate crude (WTI) fell 92 cents, or 1.04%, to $87.90 per barrel.

“(Brent) crude oil prices slid to (around) $90 a barrel as rising US yields and a stronger US dollar dominated market sentiment,” ANZ analysts said in a client note.

“While supply remains tight, higher interest rates means expensive storage of inventories. This could lead to further destocking of oil inventories while increasing spot availability.”

Earlier on Monday, the U.S. dollar rose to a 10-month high against a basket of major peers after the U.S. government avoided a partial shutdown and economic data fuelled expectations the Federal Reserve will keep rates higher for longer, which could slow economic growth.

Higher interest rates along with a stronger dollar also makes oil more expensive for holders of other currencies, which could dent oil demand.

The announcement from Turkey’s energy minister that the country will restart operations this week on a pipeline from Iraq that has been suspended for about six months further weighed on prices.

“In theory, under the terms of the OPEC+ deal, production (outside the GCC) should remain flat over Q4. However, Iraq’s compliance has been somewhat spotty in the past and export levels should be expected to rise, assuming the pipeline resumes operations as planned,” analysts from BMI Research said in a client report.

OPEC+, the Organization of the Petroleum Exporting Countries (OPEC) plus Russia and other allies, is expected to keep its output settings unchanged when it meets on Wednesday, keeping supplies tight.

BMI Research analysts said “given that the global economy is slowing, the group will likely want to maintain their current cuts, while signposting the scope for further reductions, if market conditions demand it.”