Oil prices drop on higher dollar in volatile week

Oil pumps working under the sky

SULAIMANI (ESTA) — Oil prices slipped on Friday as the dollar continued to rise on bets the U.S. central bank will bring forward plans to raise rates to tame inflation.

U.S. West Texas Intermediate (WTI) crude futures fell 59 cents to $81 a barrel at 0622 GMT, reversing Thursday’s 25 cent gain.

Brent crude futures dropped 62 cents to $82.25 a barrel.

“The greenback may hold its strength until the expectation of a more hawkish Fed is fully digested by the market, which may not be sooner than mid-2022. Before that happens, a strong dollar can be a possible headwind for higher oil prices,” said Leona Liu, analyst at Singapore-based DailyFX.

Both benchmark crude contracts were poised to end the week lower by around 0.7% after sharp moves up and down, driven by a soaring dollar and speculation on whether the Biden administration might release oil from the U.S. Strategic Petroleum Reserve to cool prices.

“The market is in a finely balanced situation,” said Westpac senior economist Justin Smirk.

While the market is tightly supplied, he said the bigger issue is the change in the demand dynamic, as the market moves away from a strong recovery driven by a revival in demand for goods — which has stoked energy demand — toward a recovery in demand for services.

There are positive signs on the demand side, with air travel rapidly picking up, but tighter monetary and fiscal policy and the oncoming northern hemisphere winter will act as a dampener.

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