Weekly Recap: Oil Prices Decline on Renewed Demand Worries, Dollar Strength
Crude oil prices declined this week as concerns persisted that a recovery in global oil demand might not materialize as quickly as hoped due to a second wave of Covid-19 infections in several major economies, and the strengthening of the U.S. dollar caused commodity prices to weaken in general.
The near-month contract for WTI crude fell around 7.5% this week to US$39.77 per barrel (/bbl), while the Brent crude contract for November delivery declined 5.3% to US$42.66/bbl. Refinery demand for crude oil is also set to weaken as many refineries in the U.S. will soon undergo planned seasonal maintenance.
The EIA on Wednesday reported that gasoline demand in the U.S. fell to 8.78 million barrels per day (MMbbls/d) in the week ended August 28th, from 9.16 MMbbls/d the week before. Data indicating that job growth in the U.S. slowed in August also contributed to negative market sentiment. In other major oil consuming countries such as India, a second wave of Covid-19 infections continues to impact the outlook for a ‘V-shaped’ economic recovery, further contributing to weakening oil prices.
Prices also declined as the U.S. Dollar Index (DXY), which measures the value of the dollar against a basket of six other major international currencies, gained this week after months of steady and continuous decline. The DXY recovered to 92.72 on Friday, after falling to as low as 91.75 earlier in the week. However, despite the uptick in the index at the end of this week, the DXY has declined nearly 10% since its 2020 peak of 102.99 in March, driven largely by the U.S. Federal Reserve’s unprecedented quantitative easing and balance sheet expansion.