Oil Prices Pull Back as Stronger Dollar Caps Gains

Oil prices edged lower today, pressured by a strengthening U.S. dollar, although futures managed to hold onto the bulk of recent gains. The front-month WTI is trading around $69.82 per barrel, down 0.26% on the day, while Brent crude sits at $72.89 per barrel, a 0.48% decrease.

The decline comes after both benchmarks hit six-week highs earlier in the week.

The primary driver of today's pullback is the surging U.S. dollar. The Dollar Index (DXY) has broken above the 100 mark, a level not seen in two years. This makes dollar-denominated commodities like oil more expensive for international buyers, potentially curtailing demand. The dollar’s strength is fueled by expectations that the Federal Reserve will maintain its hawkish monetary policy in response to persistent inflation.

Despite the dollar's headwind, oil prices have demonstrated resilience, clinging to gains achieved amidst escalating geopolitical risk and ongoing trade negotiations. President Trump's renewed push for a swift resolution to the war in Ukraine, coupled with threats of secondary tariffs on nations trading with Russia, has injected uncertainty into the market.

Specifically, the threat of 100% tariffs on countries dealing with Russia within 10-12 days raises concerns about potential supply disruptions, particularly given China's significant imports of Russian crude.

Market participants are also closely monitoring U.S. inventory data. Recent figures revealed an unexpected build of 7.7 million barrels in crude oil inventories, contrasting with a larger-than-anticipated drawdown in gasoline reserves. This suggests robust gasoline demand, which is providing some support to prices, even as concerns about overall global economic growth linger.

Analysts are offering varying perspectives on the near-term outlook for oil. Forecasts for Brent to trade around $70 per barrel by the end of the current quarter and $74 within 12 months are about par, with WTI ~ 5% lower.