Oil dropped as the dollar strengthened and investors turned their attention to a Federal Reserve meeting this week that’s expected to signal moving toward scaling back stimulus.
Futures in New York fell 0.8% toward $71 a barrel. The dollar rose for a third day, making commodities priced in the currency such as oil less attractive to investors. Policy makers are poised to start laying the groundwork for reducing monthly asset purchases when the Fed meets for two days from Tuesday, a Bloomberg survey of economists showed.
“Tapering jitters are back ahead of the US Fed meeting and weighing on oil,” said Vandana Hari, founder of energy consultant Vanda Insights in Singapore. Last week’s supportive factors, including big stockpile draws due to a slow recovery from Hurricane Ida, have waned, she added.
Oil still capped a fourth weekly advance on Friday, with prices clawing back gains following an interruption by the sweeping spread of the delta variant of the virus that raised concerns about the demand outlook. The global market has tightened, with focus also shifting to the energy crunch playing out worldwide that may increase demand for crude.
Energy prices have rallied globally as economies emerge from the pandemic, especially natural gas, which has spurred the prospect of fuel switching. There are expectations diesel demand will expand in Asia during winter, while the use of oil to generate power in the US may jump. Goldman Sachs Group Inc., however, said the crude market won’t be able to absorb the widespread replacement of pricey gas with oil in the electricity and industrial sectors.
West Texas Intermediate for October delivery dropped 0.8% to $71.40 a barrel on the New York Mercantile Exchange at 10:28 a.m. Singapore time after falling 0.9% on Friday.
Brent for November settlement slid 0.7% to $74.81 on the ICE Futures Europe exchange after losing 0.4% on Friday.
The prompt timespread for Brent was 77 cents a barrel in backwardation — a bullish structure where near-dated contracts are more expensive than those further out. That compares with 61 cents a week earlier.
Iraq expects oil prices to be around $70 a barrel in the first quarter of next year, with the market kept in balance by supply increases from the OPEC+ cartel and demand continuing to recover from the pandemic.