Oil prices head for weekly dip as dollar firms

Oil prices fell on Friday, wiping out gains from the previous session as the dollar continued to firm on expectations that the US central bank will bring forward an increase to interest rates in an effort to tame inflation.

Brent crude futures dropped $1.36, or 1.6%, to $81.51 a barrel by 1200 GMT and US West Texas Intermediate (WTI) crude was down $1.58, or 1.9%, at $80.01.

Both benchmark crude contracts were poised to end the week lower after sharp swings driven by a strengthening dollar and speculation on whether the Biden administration might release oil from the US Strategic Petroleum Reserve to cool prices.

There are positive signs on the demand side, with air travel picking up rapidly, but tighter monetary and fiscal policy and the looming northern hemisphere winter will act as a dampener.

The Organisation of the Petroleum Exporting Countries (OPEC) on Thursday cut its world oil demand forecast for the fourth quarter by 330,000 barrels per day (bpd) from last month’s forecast as high energy prices hamper recovery from the economic fallout from the Covid-19 pandemic.

“The oil market is sleepwalking into a supply surplus,” said Stephen Brennock of oil broker PVM.

“OPEC and its allies will at the very least need to put a pause on the easing of their supply curbs in the new year. Inaction will result in global oil stocks swelling once again.”

OPEC, Russia and allies, together known as OPEC+, agreed last week to stick to plans to add 400,000 bpd to the market each month.