Oil Prices Slide amidst Strong Dollar and Profit-Taking by Traders
In early Asian trading on Tuesday, oil prices experienced a decline due to the strengthening U.S. dollar and profit-taking by traders, following a period of substantial gains in the last quarter. Brent futures for December delivery dropped by 0.4%, or 34 cents, to reach $90.37 per barrel, while U.S. West Texas Intermediate crude (WTI) decreased by 0.3%, or 29 cents, to $88.53 per barrel.
During the third quarter, crude prices had surged by almost 30% to reach their highest point in ten months, prompting some traders to cash in their profits. Prior to the pullback in crude prices that began on September 28th, U.S. speculators had increased their net long futures and options positions on the New York Mercantile and Intercontinental Exchanges to their highest levels since May 2022, as reported by the U.S. Commodity Futures Trading Commission.
The U.S. dollar reached a ten-month high against a basket of major currencies on Monday, as the U.S. government avoided a partial shutdown and economic data suggested that the Federal Reserve might maintain higher interest rates for an extended period, potentially slowing economic growth.
Investors in Asia are keeping a close watch on the Reserve Bank of Australia’s upcoming policy decision and guidance. It is anticipated that Australia’s central bank will maintain its key interest rate at 4.10% in the Tuesday announcement, according to a Reuters poll.
However, there are expectations of another rate hike, potentially reaching 4.35% by the year’s end, as inflation remains above the target. Higher interest rates, coupled with a stronger dollar, which makes oil more expensive for holders of other currencies, could have a dampening effect on oil demand.
In Europe, manufacturing data indicated that the euro zone, Germany, and Britain continued to experience economic downturns in September. On a more positive note, an official survey of Chinese manufacturing revealed expansion for the first time in six months.
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Turkey’s energy minister announced plans to resume operations on a pipeline from Iraq that had been suspended for approximately six months, injecting additional crude supply into the market.
Furthermore, OPEC+ (the Organization of the Petroleum Exporting Countries plus Russia and other allies) is scheduled to meet on Wednesday, but it is unlikely that they will make adjustments to their current oil output policy. According to a Reuters survey, OPEC oil output increased for a second consecutive month in September, despite production cuts by Saudi Arabia.
