Oil futures were under pressure Friday for a second day, putting the U.S. and global crude benchmarks on track for weekly losses, after the dollar soared in the wake of a shift in tone by the Federal Reserve this week.
West Texas Intermediate crude for July delivery fell 74 cents, or 1%, to $70.30 a barrel on the New York Mercantile Exchange, putting the U.S. benchmark on track for a weekly fall of 0.9%. The global benchmark, August Brent crude was down 78 cents, or 1.1%, at $72.30 a barrel on ICE Futures Europe. Brent was off 0.5% for the week.
“We believe that the strength of the US dollar, which has seen [the euro/U.S. dollar pair] plunge in a matter of days from over $1.21 to $1.19 now, is chiefly responsible for the price correction,” said Eugen Weinberg, analyst at Commerzbank, in a note.
A surging U.S. dollar was getting the blame for a selloff across commodity markets, including crude oil. The greenback moved sharply higher Wednesday and Thursday after a Federal Reserve meeting that saw policy makers pencil in two interest rate increases by the end of 2023 and begin discussing the eventual tapering of its monthly asset purchases.
The ICE U.S. Dollar Index a measure of the currency against a basket of six major rivals, was up 0.1% on Friday, headed for a 1.6% weekly gain, which it would be its strongest since September, according to FactSet. A stronger dollar can weigh on commodities priced in the currency, making them more expensive to users of other currencies.
The selloff across commodities, meanwhile, also appeared to be part of a pullback by assets that had been buoyed by bets on a pickup in inflation. The Bloomberg Commodity Index, which tracks 23 commodities futures markets, was down 4.8% for the week, trimming its year-to-date gain to 15.8%. The weekly pullback was on track to be the largest since March 2020.
“The fact that several other commodities have also weakened means sentiment towards the sector has turned negative, hurting crude oil in the process,” said Fawad Razaqzada, analyst at ThinkMarkets, in a note.