Oil drops over 1% on higher dollar, interest rate concerns

Canada Global (Web News) As the US dollar grew stronger and investors thought about a potential US Federal Reserve interest rate hike in May that might dampen economic recovery optimism, oil prices started to decline on Monday.

At 11:14 a.m. EDT (1514 GMT), Brent oil futures were down 97 cents, or 1.1%, at $85.34 a barrel, while U.S. West Texas Intermediate crude was down $1.04, or 1.3%, at $81.48 a barrel.

Last week saw the fourth straight weekly increase for both contracts, the longest such run since mid-2022.

Oil priced in dollars is now more expensive for owners of other currencies due to the US dollar rising in tandem with interest rate increases. On Monday, the dollar index increased by about 0.65%.

According to Price Futures Group analyst Phil Flynn, “the dollar is a little bit stronger, and that seems to be putting a little bit of pressure on oil here.”

Traders have delayed expectations of a rate decrease, which generally happens in a recession, until late this year and are betting that the Fed will increase its lending rate by another quarter of a percentage point in May.

The International Energy Agency (IEA) predicts that China will account for the majority of the demand rise in 2023, thus the release of China’s first-quarter gross domestic product (GDP) figures on Tuesday at 0200 GMT is anticipated to be favourable for commodities prices.

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