Oil prices fell for a second straight session on Friday as the US dollar soared on the prospect of interest rate hikes in the United States, but they were on track to finish the week little changed and only slightly off multi-year highs.
Brent crude futures were down $0.86, or 1.2%, at $72.22 a barrel as of 1220 GMT. US West Texas Intermediate (WTI) crude futures were down $0.84, or 1.2%, at $70.20 a barrel.
On Wednesday, Brent settled at its highest price since April 2019, while WTI settled at its highest since October 2018.
"Formidable US Dollar strength following the Fed's hawkish shift is dominating the oil market heading towards the weekend," said Sophie Griffiths, market analyst at OANDA.
"The bullish trend in oil remains intact, thanks to optimism surrounding the demand outlook. The dollar may well be strengthening but the fundamental picture for oil hasn’t changed," she added.
The dollar has rocketed in the two sessions since the US Federal Reserve projected possible rate hikes in 2023, earlier than market watchers previously expected. A rising dollar makes oil more expensive in other currencies, curbing demand.
The prospect of rate hikes also weighed on the longer-term growth outlook, which would eventually hurt oil demand, in contrast to the near-term outlook for growth in demand as pandemic lockdowns ease and road and air travel pick up, said Westpac senior economist Justin Smirk.
"The near term's all very positive. The question is how much further can it rise", Smirk said.
Oil prices also fell after Britain on Thursday reported its biggest daily rise in new cases of Covid-19 since February 19, with government figures showing 11,007 new infections versus 9,055 a day earlier.
Adding to negative sentiment were remarks from Iran's top negotiator on Thursday saying talks between Tehran and Washington on reviving the 2015 Iran nuclear deal have come closer than ever to an agreement.
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