Is the stronger dollar a threat to oil prices?

A stronger dollar makes oil more expensive for holders of other currencies, thereby adding downward pressure on oil prices. Although there are still supply tightening factors from OPEC and Russia, the appreciation of the dollar and rising inventories have kept oil prices under pressure.

On Wednesday, Brent crude oil fell 1.16% to $76.23 per barrel, and U.S. crude dropped 1.25% to $73.32 per barrel. Although oil prices initially rose due to supply tightening by Russia and OPEC members, the strengthening dollar and the increase in U.S. fuel inventories eventually pressured prices.

By Thursday (January 9), U.S. crude prices were trading at $73.73 per barrel during the U.S. session, showing narrow fluctuations. Technically, oil prices encountered resistance near a downtrend line, leading to a pullback as indicators entered an overbought zone.

The U.S. Energy Information Administration (EIA) reported a significant increase in gasoline and diesel inventories. Last week, gasoline inventories rose by 6.3 million barrels, exceeding the market expectation of 1.5 million barrels, while distillate inventories increased by 6.1 million barrels, far higher than the expected 600,000 barrels. These rising inventories, along with increased refinery production, have put pressure on the oil market. Although crude oil inventories showed a decline, the strong dollar and increasing inventories remain the main market disruptions.

Will Oil Prices Continue to Rise?

From a technical perspective, after reaching $75.267, oil prices showed signs of pullback, indicating a tug-of-war between bulls and bears after attempting to break higher. Following the pullback, oil prices have stabilized and are in a range-bound phase, indicating continued bullish sentiment. However, the strengthening dollar and the increasing fuel inventories may continue to exert pressure on oil prices. Therefore, while there is some potential for short-term gains, oil prices will face challenges from the strong dollar and growing inventories.

The recent pullback in oil prices and the strength of the dollar indicate that the oil market is still under significant pressure. Investors should approach market fluctuations with caution and monitor upcoming EIA data and other economic indicators, especially concerning inventories and the dollar. Given the ongoing focus on the dollar and oil supply conditions, the future price movement of oil remains uncertain.