Oil prices climbed more than $5 on Monday, buoyed by a weak dollar. supply shortages and expectations that the US Federal Reserve will not raise interest rates by a full percentage point at its next monetary policy meeting, factors that offset fears of a recession and the prospect that widespread lockdowns by COVID-19 in China reduce fuel demand again.
Brent futures for September delivery gained 5.11 dollars, or 5.1%, to settle at 106.27 dollars a barrel, after rising 2.1% on Friday.
US WTI crude oil futures for August delivery rose $5.01, or 5.1%, to $102.60 a barrel, after adding 1.9% in the previous session.
On Friday, Fed officials suggested the central bank would raise the key interest rate by 75 basis points – as the market expects – at its July 26-27 meeting.
Late last week, unconfirmed reports that the Fed was considering raising the policy rate by 100 basis points rocked financial markets.
The dollar fell from multi-year highs on Monday, supporting commodity prices. A weaker dollar makes dollar-denominated commodities cheaper for holders of other currencies.
“Today’s strong advance was largely due to a significant and widespread weakening of the dollar that has been a key factor in the daily swings in oil prices in recent weeks,” said Jim Ritterbusch, head of Ritterbusch and Associates LLC in Galena, Ill.
Both Brent and WTI posted their biggest weekly declines in about a month last week on fears of a recession affecting oil demand. Mass COVID testing continues in parts of China this week, raising concerns about demand for oil from the world’s second-largest consumer.
However, supplies remain tight. As expected, US President Joe Biden’s trip to Saudi Arabia has not prompted OPEC’s main producer to commit to increasing oil supply.
Biden wants Gulf oil producers to increase production to help lower oil prices and reduce inflation.
World markets are focusing this week on the resumption of Russian gas flows to Europe through the Nord Stream 1 gas pipeline, whose maintenance will end on July 21. Governments, markets and companies fear that the closure will be prolonged by the war in Ukraine.
“Brent crude will find support at the end of the week if Russia does not return gas to Germany following the Nord Stream 1 hold,” OANDA Principal Analyst Jeffrey Halley said.
The loss of that gas to Germany, the world’s fourth largest economy, would hit it hard and increase the risk of recession.
With information from Reuters.
