Oil prices extended their retreat Thursday after hawkish US Federal Reserve meeting minutes strengthened the dollar and a weekly report showed rising US crude stockpiles.
Prices hit 2016 highs Wednesday due in part to production outages resulting from wildfires around the Canadian oil sands hub of Fort McMurray but pulled back to settle lower after the dollar climbed.
A stronger greenback makes dollar-priced oil more expensive, denting demand and hurting prices.
Minutes from the US Federal Reserve’s policy meeting in April that were released Wednesday showed that policymakers kept open the door to raising interest rates in June.
Higher interest rates typically encourage investors to move to the dollar for higher yields, lifting the currency.
At about 1200 GMT, US benchmark West Texas Intermediate (WTI) for June delivery was down 84 cents at $47.35 per barrel. Brent for July dipped $1.08 to $47.85 a barrel.
“The main factor weighing on prices is the much appreciated US dollar,” said Commerzbank analyst Carsten Fritsch.
“What is more, rain forecast in the Canadian oil province of Alberta is giving rise to hopes that the devastating wildfires there could be brought under control.”
Before Fed minutes were released on Wednesday, prices had been on the march toward $50 due to supply disruptions in Canada and Africa’s biggest oil producer Nigeria, with better demand also boosting hopes of easing a global crude oversupply.
CMC Markets senior sales trader Alex Wijaya said the strengthening dollar and a rise in US commercial crude inventories last week combined to “cause a dip in oil prices”.
The US stockpiles rose 1.3 million barrels in the week ending May 13, indicating softer demand in the world’s top oil consumer.
Prices have rebounded strongly since plunging to near 13-year lows below $30 in February but are still well below peaks of more than $100 a barrel reached in June 2014.
“In the near term, the oil market will watch closely economy data from Japan and the US due to be released next week,” said EY oil and gas analyst Sanjeev Gupta.
“Outages and supply disruptions in Canada, Nigeria and Venezuela will also impact the balancing of the oil market,” he said in a note.