With the dollar weakening and speculation that the U.S. Federal Reserve won’t hike interest rates by a full percentage point at its upcoming meeting to fight inflation, oil prices increased by more than $5 on Monday as reported by Reuters.
Increased interest rates
After increasing 2.1% on Friday, Brent crude futures for September settlement increased $5.11, or 5.1%, to close at $106.27 a barrel.
After gaining by 1.9% the previous session, U.S. West Texas Intermediate (WTI) oil futures for August delivery ended the day up $5.01, or 5.1%, at $102.60.
Two U.S. Federal Reserve officials said on Friday that the bank would probably only increase interest rates by 75 basis points at its meeting on July 26–27. Market declines late last week were triggered by earlier rumours that the Fed was mulling a 100 basis point move.
The U.S. dollar
“Today’s strong advance resulted largely from a sizable and broad-based weakening in the U.S. dollar that has been providing a key driver behind daily oil price swings during the past several weeks,” said Jim Ritterbusch, president of Ritterbusch and Associates LLC in Galena, Illinois.
Both Brent and WTI last week registered their biggest weekly declines in about a month.
As expected, U.S. President Joe Biden’s trip to Saudi Arabia did not yield any pledge from the top OPEC producer to boost the oil supply.
Biden wants Gulf oil producers to step up output to help to lower oil prices.
That added support to oil prices, as traders saw it potentially as a precursor to actions by Russia to use energy as a weapon.
“The other clear risk …is that Russia will further slash energy supplies to Europe to try to raise the cost of supporting Ukraine and imposing sanctions,” said Helima Croft, head of global commodity strategy at RBC Capital Markets.
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