Oil falls 2% on risk aversion, dollar strength

[NEW YORK] Oil prices fell 2 per cent on Monday as investors grew more risk averse, which hurt stock markets and boosted the US dollar, making oil more expensive for holders of other currencies Brent crude fell US$1.42, or 1.9 per cent, to settle at US$73.92 a barrel after sinking to a session low of US$73.52. US West Texas Intermediate (WTI) declined US$1.68, or 2.3 per cent, to end at US$70.29 after falling to as low as US$69.86.

The dollar, seen as a safe haven, rose as worries about Chinese property developer Evergrande's solvency spooked equity markets and investors braced for the Federal Reserve to take another step toward tapering this week.

"As the US dollar is usually a safe haven, its exchange rate against other currencies strengthens, a development that supplements the risk aversion environment and affects commodity prices, especially oil," Rystad Energy's oil markets analyst Nishant Bhushan said.

"Oil gets more expensive for non-dollar markets and prices get a hit as a result, a bearish move backed by the stock market itself in an environment of risk aversion."

Still, oil drew some support from signs that some US Gulf output will stay offline for months due to storm damage.

Brent has gained 43 per cent this year, supported by supply cuts by the Organization of the Petroleum Exporting Countries and allies, and some recovery in demand after last year's pandemic-induced collapse.

Losses on Monday were limited due to supply shutdowns in the US Gulf of Mexico due to two recent hurricanes. As of Friday producing companies had just 23 per cent of crude production offline, or 422,078 barrels per day.

Crude pared its decline on Monday after Royal Dutch Shell said it expects an installation in the Gulf of Mexico to be offline for repairs until the end of 2021 due to damage from Hurricane Ida.

The facility serves as the transfer station for all the output from the company's assets in the Mars corridor of the Mississippi Canyon area to onshore crude terminals.

Rystad Energy analyst Artem Abramov estimated the lost production will remove 200,000 to 250,000 barrels per day (bpd) of Gulf of Mexico oil supply for several months. The Gulf contributes about 16 per cent of US oil production, or 1.8 million bpd.

REUTERS