Brent loses ground on stronger US dollar

The front-month ICE Brent contract dipped $1.83/bbl on the day from Friday, to trade at $79.51/bbl at 09.00 GMT.

PHOTO: Getty Images

Upward pressure:

Supply concerns have re-emerged in the global oil market amidst expectations of increased fuel demand this summer, providing some support to Brent's price.

OPEC+ members, including Saudi Arabia, the UAE, and Russia, have reaffirmed the group's preparedness to halt or reverse the gradual oil production increase set to begin in October this year. This comes after the group decided on 2 June to incrementally phase out its combined supply cut of 2.2 million b/d between October 2024 and September 2025.

The indications from OPEC+ members that they may pull back from the decided phase-out of the supply cut have been considered bullish for the oil market.

“We believe current market positioning is overly pessimistic, considering that we expect larger oil inventory declines over the next few weeks,” stated UBS analysts in a report cited by Reuters.

OPEC is scheduled to release its latest monthly oil market report on Tuesday, followed by the EIA's short-term energy outlook on the same day. These reports are eagerly awaited by the market.

Downward pressure:

The US Energy Information Administration (EIA) reported last week that commercial US crude oil inventories, a key indicator for demand growth, rose by 1.23 million bbls to 456 million bbls in the week ending 31 May. A significant increase in US crude stocks is typically viewed as a negative indicator of growth in oil demand.

Brent has also been affected by a robust US dollar, which strengthened following Friday's US jobs data. The job data revealed that the US added more jobs than expected in May, prompting investors to adjust their expectations for interest rate cuts and resulting in the rise of the US dollar.

Total nonfarm payrolls expanded to 272,000 in May, up from 165,000 in April, the US Bureau of Labor Statistics reported.

A stronger dollar increases the cost of dollar-denominated commodities like oil for holders of other currencies. It can also dampen global oil demand as oil becomes more expensive for holders of other currencies, potentially leading to lower oil prices.

By Tuhin Roy

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