Oil Dips as Demand Signs, Strong Dollar Leave Traders ‘Cautious’

(Bloomberg) -- Oil lost ground amid signs of tepid demand, with a stronger dollar and key technical measures also putting a lid on the commodity’s recent rally. 

Some Asian refiners are considering cuts to crude-processing volumes as profit margins shrink, signaling softer oil demand in the region, while weakness in the global diesel market added to the concerns. The stronger dollar and lingering inflation also weighed on prices, with broader markets waiting to hear from Federal Reserve speakers this week. 

“Worries about stuttering economic growth and untamable inflation are capping efforts to push prices higher,” said Tamas Varga, an analyst at PVM Oil Associates Ltd. “Breaking above the $90 barrier on Brent will be a tall order in the very near future.”

Technicals are also providing headwinds for the commodity as the four-week rally has left crude in overbought territory, signaling a correction is possible in the short term. The US benchmark failed to break through its 200-day moving average last week and has been trading lower ever since. 

“Prices need a breath from the latest four-week rally,” said Dennis Kissler, senior vice president of trading at BOK Financial Securities. Futures are mostly in overbought territory, causing traders this week to be in a “cautious mode.”

Oil has rebounded from the banking shock that rippled across markets in March and drove futures to a 15-month low. Shrinking crude stockpiles at the key US storage hub of Cushing, Oklahoma, and interruptions to supplies from Iraqi Kurdistan have added to the tightening of global markets.

©2023 Bloomberg L.P.