Brent gains momentum following weakness in US dollar

The front-month ICE Brent contract has moved $0.59/bbl higher on the day, to trade at $64.25/bbl at 09.00 GMT.

IMAGE: Oil barrels and pumpjacks along with an upward arrow depicting today's price gains. Getty Images

Upward pressure:

Brent's price has gained upward momentum as some concerns about the weakness in the US economy have eased.

The US inflation rate, based on the Consumer Price Index (CPI), increased to 2.3% last month year-on-year, down from the 2.4% growth seen in March, according to the US Bureau of Labor Statistics (BLS). 

The data has left room for interest rate cuts by the US Federal Reserve (Fed) this year, according to analysts. “The market isn’t leaning aggressively into [interest rate] cuts yet, but the door is clearly open,” SPI Asset Management managing partner Stephen Innes noted.

Lower interest rates in the US can boost demand, making dollar-denominated commodities like oil cheaper for holders of other currencies.

Besides, the US dollar has weakened over the past day, providing some support to Brent’s price. “The dollar kicked off the week with a bounce… but the momentum didn’t last,” Innes added.

A weaker greenback can make commodities like oil more affordable for non-dollar holders, ultimately boosting oil demand in the global market. 

Downward pressure:

Brent’s price gains have been capped following US President Donald Trump's remarks on the US-Iran nuclear talks. Trump said on Thursday that Washington and Iran were very close to signing an agreement to halt the latter’s nuclear activities.

Tehran has “sort of” agreed to the terms, Trump said during the press brief on Thursday. “We're in very serious negotiations with Iran for long-term peace.”

If finalised, the deal could see the US lifting sanctions on Iranian oil. The move could add more Iranian crude to an already saturated global oil market and push prices lower, according to market analysts.

The weekly official US oil stocks figure from the US Energy Information Administration (EIA) showed an increase of 3.5 million bbls in commercial crude stocks, to touch 442 million bbls for the week ending 9 May.

“Oil prices did get a little pressure with a surprise build in crude oil inventories as reported by the Energy Information Administration (EIA),” Price Futures Group’s senior market analyst Phil Flynn said.

By Aparupa Mazumder

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