Oil prices dip as dollar surges on hawkish Fed outlook

Oil prices fell in Asian trade on Thursday, coming under pressure from a stronger dollar after the Federal Reserve projected a much slower pace of interest rate cuts in the coming year. 

Crude markets were also grappling with mixed U.S. inventory data, which signaled that fuel demand was likely cooling with the onset of the winter season.

Brent oil futures expiring in February fell 0.5% to $73.02 a barrel, while West Texas Intermediate crude futures fell 0.6% to $69.60 a barrel by 20:15 ET (01:15 GMT). 

Still, both contracts logged some gains this week after reports suggested that top oil importer China will ramp up fiscal spending in 2025 to support the economy. Oil supplies are also expected to tighten after the Organization of Petroleum Exporting Countries recently agreed to extend ongoing production cuts.  Oil pressured by stronger dollar on hawkish Fed 

The dollar shot up to an over two-year high on Wednesday, after the Fed slashed its outlook for rate cuts in 2025.

The central bank now only expects only two 25 basis point cuts in the coming year, compared to prior forecasts of four cuts. The Fed also cut interest rates by 25 basis points , although this move was largely priced in by markets.

The Fed’s outlook sparked a sharp pullback across risk-driven markets, while boosting the dollar.

A stronger dollar pressures oil demand by making the commodity more expensive for international buyers. 

Traders also feared that global economic growth will cool under relatively higher rates, limiting demand.  Oil sees some support from China hopes, tighter supplies 

Crude prices were sitting on some gains this week, especially after signs of more elaborate fiscal stimulus in top oil importer China.

Softening Chinese demand has been a key point of concern for oil markets, as the country grapples with a prolonged economic downturn.

The prospect of tighter supplies also offered crude some support, after Kazakhstan signaled that it will comply with recent production quotas set by the OPEC+.

The cartel agreed to extend ongoing production cuts until at least the second quarter of 2025, amid persistent concerns over slowing demand.

Source: Investing.com