Crude Oil News Today: Geopolitical Worries Offset Stronger Dollar

Oil Prices Rebound on Monday Despite Early Decline

Oil prices are trading higher on Monday, rebounding from an early session dip. Initially, the market faced pressure from a stronger U.S. dollar, driven by renewed concerns about prolonged high interest rates, which have reduced investor risk appetite. While this could limit price gains throughout the session, conditions might shift to a bullish outlook quickly due to the market’s sensitivity to geopolitical events, particularly in the Middle East.

At 09:19 GMT, Light Crude Oil futures are trading $81.01, up 0.28 or +0.35%.

Dollar Strengthens on Better PMI Data and Political Concerns

The U.S. dollar began the week on a strong note, buoyed by robust PMI data released on Friday and political uncertainties surrounding the upcoming French election. The dollar index, which measures the greenback against six major currencies, was steady at 105.84, close to its eight-week high of 105.91. Market participants are now focusing on the upcoming U.S. personal consumption expenditures (PCE) price index, the Federal Reserve’s preferred inflation gauge, due on Friday. Economists expect the index to show a slower annual growth rate of 2.6% in May. A soft reading could bolster expectations for a Fed rate cut as early as September, currently priced at a 65% probability by futures markets.

U.S. Economy Shows Signs of Slowing

Citi strategists noted accumulating evidence of a slowing U.S. economy, highlighting softer demand and a loosening labor market. They predict that this trend, along with slower inflation readings, could lead the Federal Reserve to begin reducing policy rates in September. The focus will also be on geopolitical developments, including the first U.S. presidential debate on Thursday and the initial round of voting in the French election this weekend.

Oil Market Fundamentals Remain Positive

Despite the current pressure from a stronger dollar, both benchmark crude contracts gained approximately 3% last week. This increase was supported by signs of stronger oil product demand in the U.S., the world’s largest consumer, and OPEC+ production cuts that have kept supply tight. U.S. crude inventories fell, gasoline demand rose for the seventh straight week, and jet fuel consumption returned to 2019 levels, according to ANZ analysts.

Geopolitical Risks and Supply Disruptions Support Oil Prices

Geopolitical tensions in the Middle East, particularly the Gaza crisis, and increased Ukrainian drone attacks on Russian refineries are also providing support to oil prices. Additionally, Ecuador’s state oil company, Petroecuador, declared force majeure over Napo heavy crude deliveries for export 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, reaching its lowest level since January 2022, according to Baker Hughes.

Market Forecast: Bearish Outlook

Given the current strengthening of the U.S. dollar and potential for prolonged high interest rates, the short-term outlook for oil prices remains bearish. However, underlying market fundamentals and geopolitical risks could provide some support, preventing a steep decline. Traders should monitor upcoming economic data and geopolitical events closely for further direction.

Technical Analysis

The fundamental outlook may be shifting to bearish, but the technical chart pattern is pointing higher with crude oil trading on the strong side of the 50-day moving average at $78.93. This price along with a short-term pivot at $79.16 are providing solid support.

The daily chart also suggests there is plenty of room to the upside, once buyers clear last week’s high at $81.79.