Oil edges down on demand fears and strong dollar

Crude oil storage tanks are seen in an aerial photograph at the Cushing oil hub in Cushing, Oklahoma, U.S. April 21, 2020. REUTERS/Drone Base

HOUSTON, Sept 19 (Reuters) – Oil edged down slightly on Monday, pressured by expectations of weaker global demand and by U.S. dollar strength ahead of possible large increases to interest rates, though supply worries limited the decline.

Central banks around the world are certain to increase borrowing costs this week to tame high inflation, and there is some risk of a full 1 percentage point rise by the U.S. Federal Reserve.

“Ideas that continued rate increases will slow world crude demand and keep upward pressure on the U.S. Dollar is triggering long liquidation in both crude and natural gas this morning,” said Dennis Kissler, senior vice president of trading at BOK Financial.

Brent crude for November fell 56 cents to $90.79 a barrel, a 0.6% lossby 9:58 a.m. ET (14:58 GMT). U.S. West Texas Intermediate (WTI) for October eased 47 cents, or 0.6%, to $84.64 per barrel.

A British public holiday for the funeral of Queen Elizabeth limited trade volume during London hours on Monday. read more

Oil also came under pressure from hopes of an easing of Europe’s gas supply crisis. German buyers reserved capacity to receive Russian gas via the shut Nord Stream 1 pipeline, but this was later revised and no gas has been flowing. read more

Crude has soared this year, with the Brent benchmark coming close to its record high of $147 in March after Russia’s invasion of Ukraine exacerbated supply concerns. Worries about weaker economic growth and demand have since pushed prices lower.

The U.S. dollar stayed near a two-decade high ahead of this week’s decisions by the Fed and other central banks. A stronger dollar makes dollar-denominated commodities more expensive for holders of other currencies and tends to weigh on oil and other risk assets.

The market has also been pressured by forecasts of weaker demand, such as last week’s prediction by the International Energy Agency that there would be zero demand growth in the fourth quarter. read more

Despite those demand fears, supply concerns kept the decline in check.

The Organization of Petroleum Exporting Countries and allies led by Russia, known as OPEC+, fell short of its oil production target by 3.583 million barrels per day (bpd) in August, an internal document showed. In July, OPEC+ missed its target by 2.892 million bpd. read more

“The market still has the start of European sanctions on Russian oil hanging over it. As supply is disrupted in early December, the market is unlikely to see any quick response from U.S. producers,” ANZ analysts said.

Easing COVID-19 restrictions in China, which had dampened the outlook for demand in the world’s second-biggest energy consumer, could also provide some optimism, the analysts said. read more

Additional reporting by Alex Lawler in London, Florence Tan and Jeslyn Lerh
Editing by David Goodman, David Evans and David Gregorio

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