Oil prices slip on dollar strength

Oil prices were marginally down on Friday on a stronger dollar and lingering concerns about the global glut of oil.

Brent crude for June delivery LCOM5, -0.34% traded broadly flat at $66.70 a barrel on London’s ICE Futures exchange. On the New York Mercantile Exchange, light, sweet crude futures for delivery in June CLM5, -2.12% was recently trading down 0.3% at $59.68 a barrel.

A rising dollar DXY, +0.51% on Friday exerted downward pressure on oil. As it is priced in dollars, oil becomes more expensive to holders of other currencies as the greenback appreciates. The Wall Street Journal Dollar Index BUXX, +0.50% , which tracks the dollar against a basket of other major currencies, rose 0.3%.

Market participants were also bracing for the release of the latest U.S. oil drilling rig numbers later on Friday.

The rig count — a proxy for activity in the industry — is down 58% since a peak in October. The decline, however, has slowed in recent weeks and some shale players are expecting to add rigs in the coming months if prices stabilize near the current levels.

Oil prices were further pressured by continuing concerns about the global oversupply.

Futures have rebounded by about 40% in recent months from their lows earlier in the year. Analysts, however, say the global supply and demand balance hasn’t changed significantly to support such a price increase.

Recent data points to “still loose underlying fundamentals despite price optimism,” analysts at UBS wrote in a note to clients. “It is still early with no obvious signs of physical market tightening.”

Earlier this week, the International Energy Agency said that while it expects U.S. shale-oil output growth to show signs of slowing, other producers such as Russia and Saudi Arabia continue to ramp up production.

Oil prices largely shrugged off an incident involving an oil tanker in the Middle East. Iranian patrol boats on Thursday opened fire on a Singapore-flagged vessel as it moved through the Strait of Hormuz. The incident raised new concerns about Iran’s attempts to exert more control of commerce in the Persian Gulf.

This is the second time in two weeks that Islamic Revolutionary Guard Corps naval patrol boats have confronted a commercial ship moving through the strait, according to U.S. officials.

“The fact that the market is no longer reacting euphorically to such news could indicate that the price rally — for which there is little fundamental justification — is running out of steam,” said analysts at Commerzbank.

June gasoline RBM5, -1.52% fell 0.3% to $2.0519 a gallon, while ICE gas oil for June changed hands at $610.50 a metric ton, down $3.50 from Thursday’s settlement.

Market Watch

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Craig Erlam

Craig Erlam

Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam
Craig Erlam

Latest posts by Craig Erlam (see all)