Despite supply concerns, oil fell more than 1.5% on Monday due to anticipation of lower global demand and the strength of the U.S. currency before potential significant hikes in interest rates. There is a chance that the U.S. Federal Reserve may raise interest rates by an unexpectedly large 1 percentage point this week.
According to oil dealer PVM’s Tamas Varga, “the approaching Fed meeting and the strong dollar are maintaining a lid on prices.” At 10:02 GMT, the price of Brent crude for November delivery was $89.86 a barrel, down $1.49 or 1.6%. For October, U.S. West Texas Intermediate (WTI) fell $1.57, or 1.8%, to $83.54.
Activity on Monday was anticipated to be restricted by a British public holiday for Queen Elizabeth’s burial. Hopes of a resolution to Europe’s gas supply dilemma also put pressure on oil. German purchasers had previously secured space to receive Russian gas through the shut-down Nord Stream 1 pipeline, but this had now been changed and no gas had been moving.
In March, when Russia’s invasion of Ukraine compounded supply fears, the Brent benchmark crude price nearly reached its record high of $147. Crude prices have surged this year. Since then, prices have decreased due to concerns about decreasing demand and economic development.
Ahead of the Fed and other central banks’ announcements later this week, the U.S. dollar remained close to a two-decade high. Oil and other risky assets often suffer when the dollar is stronger because it makes commodities denominated in dollars more costly for owners of other currencies.
Forecasts for weaker demand have also put pressure on the market, such as the International Energy Agency’s estimate from last week that there would be no demand increase in the fourth quarter. Despite these worries about demand, the drop was restrained by supply issues.
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