Oil prices slip as dollar gains amid economic data, geopolitical tensions

Oil prices saw a slight decline on Monday as the U.S. dollar strengthened, driven by positive economic indicators and concerns ahead of the French election, outweighing support from geopolitical tensions and OPEC+ supply reductions.

Brent crude futures slipped 3 cents to $85.21 per barrel by 0632 GMT, following a 0.6% decline on Friday. Meanwhile, U.S. West Texas Intermediate (WTI) crude futures were down 2 cents at $80.71 per barrel.

“The U.S. dollar has opened bid this morning and appears to have broken higher following better U.S. PMI data on Friday night and political concerns ahead of the French election,” noted Tony Sycamore, a markets analyst at IG based in Sydney.

A stronger dollar typically makes commodities priced in dollars, like oil, less attractive to holders of other currencies. The dollar index, which measures the greenback against six major currencies, rose slightly after U.S. PMI data revealed robust business activity levels, reaching a 26-month high in June.

Despite the dollar’s strength, both Brent and WTI crude contracts posted gains of approximately 3% last week. This was driven by signs of increased demand for oil products in the United States, the world’s largest consumer, and ongoing supply constraints from the OPEC+ alliance.

ANZ analysts highlighted that U.S. crude inventories declined, while there was a seventh consecutive weekly rise in gasoline demand and a recovery in jet fuel consumption to pre-pandemic levels in 2019.

Speculative sentiment towards oil has also turned more positive. According to ING analysts led by Warren Patterson, speculators have increased their net-long positions in ICE Brent contracts, reflecting optimism about tighter oil market balances expected over the third quarter.

“Geopolitical risks continue to underpin oil prices,” Patterson added, pointing to ongoing tensions in the Middle East exacerbated by the Gaza crisis and increased drone attacks on Russian refineries from Ukraine.

In Ecuador, Petroecuador declared force majeure on exports of Napo heavy crude due to severe weather that caused the shutdown of a crucial pipeline and oil wells.

Meanwhile, in the United States, Baker Hughes reported that the number of active oil rigs fell by three to 485 last week, marking the lowest level since January 2022.

Overall, while geopolitical tensions and supply constraints provide support to oil markets, the strengthening U.S. dollar and positive economic data have tempered gains, leading to a modest decline in oil prices on Monday.