Oil dips on stronger US dollar, profit-taking signs after rally

OIL prices edged lower on a stronger US dollar and signs of profit-taking after a rally in July when investors bet on tighter global supplies and demand growth in the second half of 2023.

Brent crude futures for October settled at US$84.91 a barrel on Tuesday (Aug 1), down 52 US cents or 0.6 per cent. Front-month Brent settled on Monday at its highest since Apr 13.

US West Texas Intermediate crude futures closed at US$81.37 a barrel, down 43 US cents, or 0.5 per cent, from the previous session’s settlement, which was its highest since Apr 14.

“Crude is moving in a corrective phase this morning, prompted by a sharply higher US dollar index and satisfying the ‘overbought’ market situation,” said Dennis Kissler, senior vice president of trading at BOK Financial.

The US dollar index, a measure of the greenback against six major currencies, rose 0.40 per cent. A stronger US dollar makes crude more expensive for investors holding other currencies.

US crude oil stocks fell by about 15.4 million barrels in the week ended Jul 28, according to market sources citing American Petroleum Institute figures on Tuesday. Analysts had expected a drop of 1.37 million barrels.

Petrol inventories fell by about 1.7 million barrels, compared with estimates for a 1.3 million-barrel drop. Distillate inventories fell by about 510,000 barrels, compared with analysts estimates for a build of 112,000 barrels.

The inventory data helped crude futures tick up in post settlement trade. Brent was up 32 US cents or 0.4 per cent at US$85.75, while US crude futures jumped 40 US cents or 0.5 per cent to US$82.22 in thin volumes.

To revive China’s private sector amid a flagging economic recovery following a protracted period of Covid restrictions, Chinese ministries, regulators and the central bank on Tuesday pledged more financing support to small businesses.

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Oil prices hit multi-month highs on tightening supply

Meanwhile, data released on Monday showed manufacturing activity in the eurozone contracted in July at the fastest pace since May 2020, tempering enthusiasm.

On the supply side, this Friday’s Opec+ meeting is expected to see Saudi Arabia roll its voluntary cuts through September, further tightening supplies.

Opec oil output fell in July after Saudi Arabia made an additional voluntary cut as part of the Opec+ producer group’s latest agreement to support the market, and an outage curbed Nigerian supply, a Reuters survey found on Monday.

At a conference on Monday, BP chief Bernard Looney presaged oil demand growth continuing into next year and Opec+ being increasingly disciplined. REUTERS