KEY POINTS
Firming dollar, U.S. rig count weigh on crude benchmarks
Investors eye Fed policy meeting this week for tapering clues
U.S. Gulf oil output seen gradually returning to market
Oil dropped more than $1 a barrel to below $75 on Monday as rising risk aversion weighed on stock markets and boosted the U.S. dollar, while more U.S. Gulf oil output came back online in the wake of two hurricanes
The dollar rallied to its highest in a month on Monday as pending catastrophe at developer China Evergrande added to a cautious mood and as investors braced for the Federal Reserve to take another step towards tapering this week
“Far East stock markets and the strong dollar are affecting oil,” said Tamas Varga of oil broker PVM. “Nonetheless, unless all hell breaks loose, the positive sentiment ought to prevail
Brent crude fell 76 cents, or 1%, to $74.58 at 0815 GMT, having dropped as low as $74.26 earlier in the session. U.S. West Texas Intermediate (WTI) declined 89 cents, or 1.2%, to $71.08
A stronger dollar makes U.S. dollar-priced oil more expensive for holders of other currencies and generally reflects higher risk aversion, which tends to weigh on oil prices
Brent has gained 44% this year, supported by supply cuts by the Organization of the Petroleum Exporting Countries and allies and some recovery in demand after last year’s pandemic-induced collapse
Oil had gained additional support from supply shutdowns in the U.S. Gulf of Mexico due to the two recent hurricanes, but as of Friday producing companies had just 23% of crude production offline, or 422,078 barrels per day
“U.S. production in the Gulf of Mexico, which had been shut down as a result of the hurricane, is gradually returning to the market,” said Carsten Fritsch, analyst at Commerzbank
A rise in the U.S. rig count, an early indicator of future output, to its highest since April 2020 also kept a lid on prices