NEW YORK: Oil prices climbed about 3% to a one-week high on Monday, buoyed by hopes of rising fuel demand this summer despite a stronger US dollar and expectations the US Federal Reserve will leave interest rates higher for longer.
The Fed hiked interest rates aggressively in 2022 and 2023 to tame a surge in inflation. Those higher rates have boosted borrowing costs for consumers and businesses, which can slow economic growth and reduce demand for oil.
Similarly, a stronger US dollar can reduce demand for oil by making dollar-denominated commodities like oil more expensive for holders of other currencies.
Brent futures were up $1.96, or 2.5%, to $81.58 a barrel by 1:20 p.m. EDT (1720 GMT), while US West Texas Intermediate (WTI) crude rose $2.12, or 2.8%, to $77.65.
That puts Brent on track for its highest close since May 31 and WTI on track for its highest close since May 30.
Goldman Sachs analysts expect Brent to rise to $86 a barrel in the third quarter, saying in a report that solid summer transport demand will push the oil market into a third-quarter deficit of 1.3 million barrels per day (bpd).
The US dollar, meanwhile, rose to a four-week high against a basket of other currencies as the euro fell sharply due to political uncertainty in Europe after gains by far-right parties in voting for the European Parliament prompted a bruised French President Emmanuel Macron to call a snap national election.
“The increase in (crude) prices started as the US wakes up and kicks off the new week. Investors on the other side of the Atlantic clearly dismiss the euro weakness and the resultant dollar strength due to French snap elections,” Tamas Varga of oil broker PVM said.
“There is a growing conviction that demand will be buoyant as the summer driving season approaches, leading to considerable stock draws.”
Oil last week posted a third straight weekly loss on concerns that a plan to unwind some production cuts by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, known collectively as OPEC+, from October will add to rising supply.— Reuters
