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Oil Prices Drop Pressured by a Stronger U.S dollar

Crude oil prices fell on Thursday, pressured by a stronger U.S. dollar, but losses were limited by a big drop in crude oil inventories in the United States, the world’s top oil consumer.

Brent crude futures dropped by 74 cents, or 1%, to $73.65 a barrel by 0103 GMT after reaching its highest since April 2019 in the previous session.

U.S. crude oil futures fell by 69 cents, or 1%, to $71.46 a barrel, after reaching its highest since October 2018 the previous day.
oil chart
U.S WTI Oil Index

“Energy markets became so fixated over a robust summer travel season and Iran nuclear deal talks that they somewhat got blindsided by the Fed’s hawkish surprise. The Fed was expected to be on hold and punt this meeting, but they sent a clear message they are ready to start talking about tapering and that means the dollar is ripe for a rebound which should be a headwind for all commodities.” Edward Moya, senior market analyst at OANDA.

The U.S. dollar boosted its strongest single-day gain in 15 months after the Federal Reserve signalled it might raise interest rates at a much faster pace than assumed.

A firmer greenback makes oil priced in dollars more expensive in other currencies, potentially weighing on demand.

However, U.S. crude supply data from the U.S. Energy Information Administration (EIA) limited the oil’s losses.

The EIA data showed a draw of 7.355 million barrels for the week to Jun. 11. The draw was bigger than the 3.290-million-barrel draw in forecasts and the 5.241-million-barrel draw recorded during the previous week. Refineries also boosted operations to their highest level since January 2020 in a sign that the fuel demand outlook continues to improve.

Crude oil supply data from the American Petroleum Institute the day before showed a draw of 8.537 million barrels.

Also boosting prices, refinery throughput in China, the world’s second-largest fuel consumer, rose 4.4% in May from the same month a year ago to a record high.

“This pullback in fuel prices should be temporary as the fundamentals on both the supply and demand side should easily be able to compensate for a rebounding dollar,” Edward Moya, senior market analyst at OANDA.