Oil prices dip on weak demand, strong dollar

An aerial view shows tugboats helping a crude oil tanker to berth at an oil terminal, off Waidiao Island in Zhoushan, Zhejiang province, China July 18, 2022. cnsphoto via REUTERS/File photo

BEIJING  -Oil prices edged lower on Wednesday, weighed down by concerns over tepid demand and a stronger dollar even though escalating geopolitical tensions limited the losses.

The front-month March contract for Brent crude dipped 14 cents, or 0.1 percent, to $79.41 a barrel as at 0333 GMT. U.S. West Texas Intermediate crude ticked down 11 cents, or 0.2 percent, to $74.26 a barrel.

U.S. crude stocks fell by 6.67 million barrels in the week ended Jan. 19, according to market sources citing American Petroleum Institute figures on Tuesday. Gasoline inventories, however, increased by 7.2 million barrels, stoking concerns over fuel demand in the world’s top oil consumer.

READ: Oil prices ease on China demand worries, supply forecasts

The Energy Information Administration (EIA), the statistical arm of the U.S. Department of Energy, will release the data later on Wednesday.

A stronger U.S. dollar also weighed on oil prices as demand from buyers in other currencies ebbs as they have to pay more for dollar-denominated oil.

The dollar index hovered near a six-week high against major peers on Wednesday as investors cemented expectations that the Federal Reserve would be in no rush to cut interest rates in the face of a resilient U.S. economy.

READ: Dollar hovers near 6-week high; yen edges up after BOJ

“Without current geopolitical tensions, we believe crude would sell off meaningfully. Over time, we expect supply risk premiums to decouple from conflict risk, analogous to Russia-Ukraine,” said Vikas Dwivedi, global energy strategist at Macquarie, in a note.

“Barring escalation in the Middle East, we expect crude price to stay in the current range for 1Q24. We do not anticipate supply loss,” said Dwivedi.

READ: How could Red Sea attacks affect oil and gas shipping?

A coalition of 24 nations led by the U.S. and UK conducted new strikes against Houthi fighters in Yemen on Tuesday. The strikes were aimed at stopping the Houthis’ attacks on global trade, Britain said in a joint statement.

The U.S. said Iran-backed Houthis have mounted 26 attacks since late November on commercial shipping in the Red Sea, a shipping lane used by about 12 percent of global oil trade before the attacks.

The U.S. also carried out strikes against Iran-linked militia in Iraq on Tuesday, following an attack on an Iraqi air base that wounded U.S. forces.

On the supply side, Libya’s 300,000 bpd Sharara oilfield restarted on Jan. 21 after a protest-related pause since early January.

Elsewhere, U.S.’s third-largest oil-producing state of North Dakota brought some oil output back online after weather-related disruption, the state’s pipeline authority said. But output was still down as much as 300,000 barrels per day (bpd). In mid-January, output had weakened by as much as 425,000 bpd on extreme cold.