NEW YORK: Oil prices slid about 1 percent on Thursday after solid US economic data spurred the dollar to a two-month high on growing expectations the US Federal Reserve could raise interest rates again in June.
Brent futures fell 61 cents, or 0.8%, to $76.35 a barrel by 11:02 a.m. EDT (1502 GMT), while US West Texas Intermediate crude (WTI) fell 52 cents, or 0.7%, to $72.31.
The US dollar rose to its highest since March 17 against a basket of other currencies on reports showing lower-than-expected US initial jobless claims and optimism about a possible US debt ceiling deal to avert a potential default.
A stronger greenback can weigh on oil demand by making the fuel more expensive for holders of other currencies.
Dallas Federal Reserve Bank President Lorie Logan said she is concerned that “much too high” inflation is not cooling fast enough yet to allow the Fed to pause its interest-rate hike campaign in June.
High interest rates boost borrowing costs, which can reduce oil demand by slowing economic growth.
The strength of April US economic data, in addition to optimism about the debt ceiling negotiations and the health of regional banking stocks overnight have strengthened market expectations of a further hike, ANZ Research said in a note on Thursday.
President Joe Biden and top US congressional Republican Kevin McCarthy on Wednesday underscored their determination to reach a deal to raise the federal government’s $31.4 trillion debt ceiling and avoid an economically catastrophic default.
A debt agreement needs to be reached before the government runs out of money to pay its bills, which could be as soon as June 1.
Traders are pricing in around a 20% chance the Fed will raise rates at its June meeting, whereas a month ago, traders were pricing in around a 20% chance of a cut.
Meanwhile, European Central Bank (ECB) Vice President Luis de Guindos said the ECB will have to keep raising interest further to bring inflation back to its mid-term goal of 2% though most of the tightening has already been done.
Also weighing on oil prices, blue-chip stocks in China , the world’s biggest oil importer, slipped after the country’s industrial output and retail sales growth undershot forecasts, suggesting the economic recovery is losing momentum.
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