Oil prices inch higher on back of weaker US dollar

24 July 2020 (Last Updated July 24th, 2020 10:01)

Oil prices have increased on a weaker US dollar, but concerns over fuel demand due to surging Covid-19 infections and US-China tensions capped gains.

Oil prices inch higher on back of weaker US dollar
A weaker dollar makes commodities such as oil more affordable to holders of other currencies. Credit: Andrew Boggett.

Oil prices have increased on a weaker US dollar, but concerns over fuel demand due to surging Covid-19 infections and US-China tensions capped gains.

Brent crude futures increased by $0.21 at $43.52 a barrel, while West Texas Intermediate (WTI) crude futures were up by $0.12 at $41.19 a barrel, Reuters reported.

The US dollar value against other overseas currencies fell to 22-month lows.

A weaker currency makes dollar-denominated commodities such as oil more affordable to holders of other currencies because the commodities become cheaper.

OANDA New York senior market analyst Edward Moya was quoted by the news agency as saying: “Crude prices are attempting to stabilize as expectations still remain high that Congress will be successful in delivering another pandemic relief package.

“Yesterday’s US economic data showed that the economic recovery is struggling and pretty much guarantees more federal aid is coming.”

For the first time in four months, unemployment benefits filed by Americans unexpectedly increased to 1.416 million in the last week.

This indicated that economic recovery in the country is stalled due to resurgence in Covid-19 infections.

On 23 July, the US recorded more than 1,000 deaths from Covid-19, while global infections have surpassed 15 million, with approximately 620,000 deaths.

China ordered the US to shut its consulate in the Chengdu city on 24 July, in a counter-response to being told by the US to close its consulate in Houston.

This new dispute between the US and China has increased pressure on oil prices, further deteriorating the relationships between the world’s biggest economies.

Reuters cited Barclays Commodities Research as saying that oil prices could see a correction in the coming months if fuel demand recovery slows further, especially in the US.

The bank reduced its oil market surplus forecast for this year to an average of 2.5 million barrels per day (Mmbpd), down from 3.5Mmbpd in the earlier forecast.