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Oil prices edge down amid interest rate concerns and stronger dollar

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Oil prices saw a slight decline on Monday as the prospect of prolonged high interest rates buoyed the U.S. dollar, countering the support for oil markets stemming from geopolitical tensions and OPEC+ supply cuts.

Brent crude futures dipped by 3 cents to $85.21 a barrel by 0632 GMT after a 0.6% drop on Friday. Meanwhile, U.S. West Texas Intermediate (WTI) crude futures were down 2 cents, priced at $80.71 a barrel.

“The U.S. dollar has opened bid this morning and appears to have broken higher following better U.S. PMI data on Friday night and political concerns ahead of the French election,” noted Tony Sycamore, a markets analyst at IG based in Sydney.

A stronger dollar typically makes dollar-denominated commodities like oil less attractive for holders of other currencies. The dollar index, which tracks the greenback against six major currencies, climbed on Friday and continued its upward trend on Monday after data indicated U.S. business activity reached a 26-month high in June.

Despite the minor decrease, both Brent and WTI crude contracts experienced a roughly 3% increase last week. This rise was driven by indications of stronger oil product demand in the U.S., the world’s largest oil consumer, and sustained OPEC+ supply cuts.

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Analysts from ANZ highlighted that U.S. crude inventories fell while gasoline demand rose for the seventh consecutive week, with jet fuel consumption returning to 2019 levels.

ING analysts, led by Warren Patterson, pointed out that speculators have become more optimistic about oil heading into the summer, increasing their net-long positions in ICE Brent.

“We remain supportive towards the oil market with a deficit over the third quarter set to tighten the oil balance,” the ING analysts stated in a note.

Geopolitical risks, including the Gaza crisis and escalating Ukrainian drone attacks on Russian refineries, are also providing support for oil prices.

Additionally, Ecuador’s state oil company Petroecuador declared force majeure on Napo heavy crude deliveries following the shutdown of a key pipeline and oil wells due to heavy rains.

In the U.S., the number of operating oil rigs fell by three to 485 last week, marking their lowest level since January 2022, according to Baker Hughes.

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