Oil steady amid expectations of easing geopolitical tension and stronger dollar

Oil prices fell for the third straight day on Friday and remained broadly unchanged from last week’s levels, amid signs of easing geopolitical tension in the Middle East and a stronger US dollar.

Brent, the benchmark for two thirds of the world’s oil, settled 0.41 per cent lower at $85.43 a barrel on Friday. West Texas Intermediate, the gauge that tracks US crude, closed 0.54 per cent down at $80.63 a barrel.

Crude futures dropped on Thursday after the US submitted a draft resolution to the UN Security Council calling for an immediate ceasefire in Gaza linked to the release of hostages.

US Secretary of State Antony Blinken, who is on his sixth tour of the region since the latest conflict began in Gaza, announced the draft during a visit to Saudi Arabia, where he held talks with Crown Prince Mohammed bin Salman.

Meanwhile, crude demand is also expected to reduce on the strengthening dollar, which increases the cost of oil for investors.

The dollar gained after a surprise interest rate cut by the Swiss National Bank, which bolstered global risk sentiment.

The US Dollar Index – a measure of its value against a weighted basket of major currencies – was up 0.74 per cent at 104.19 on Monday.

“If the Swiss could kick off the pivot party, it is because inflation in Switzerland has been easier to fight for the SNB thanks to the traditionally strong Franc,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank. “But the fact the Swiss jumped into the water raised the expectation that the others will join ‘soon’."

Earlier this week, the US Federal Reserve left its target rate unchanged at 5.25 to 5.50 per cent, but said it expected to cut rates three times this year.

“If the economy evolves broadly as expected, it will be appropriate to begin dialling back … at some point this year,” Fed chairman Jerome Powell said. “The committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably towards 2 per cent."

Lower interest rates stimulate economic growth, improving crude demand.

Oil prices recorded a weekly gain last week due to Ukraine's attacks on Russian refineries, which heightened fears of a supply disruption.

Ukraine's intensified drone strikes caused a fire at Rosneft's largest refinery on March 13, marking one of the most severe attacks on Russia's energy sector in recent months. So far this year, there have been strikes on two oil terminals, four oil and fuel depots, and 14 refineries.

While the damage at most facilities has been repaired quickly, between 600,000 to 900,000 barrels per day of refining capacity is to remain offline for “several weeks to months”, MUFG said, quoting reports.

The drone campaign, which is becoming a key plank of Ukraine’s defence, acts a "bullish wild card for global energy markets with the geopolitical risk premium on crude oil and product markets an increasing concern”, the Japanese lender said in research note on Thursday.

Crude futures have increased by more than 10 per cent since the beginning of the year, as Opec+ cuts tighten supplies and fuel demand exceeds market predictions.

“A growing risk to oil prices is that at some point, Opec+ may conclude that further upward moves in prices may hamper the long-term residue demand for its own barrels and thus may opt to reclaim some lost market share,” MUFG said.

“This would require an increase in supply, and in turn, a weakening of the oil market – at the end of a period of Opec+ market share loss often lies an oil price decline."

The producer alliance recently extended voluntary cuts of 2.2 million bpd into the second quarter to stabilise oil markets. The group will next meet in Vienna on June 1.