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Futures Movers: Oil edges lower as investors wrestle with soaring U.S. dollar

Oil futures edged lower in choppy trade Thursday, with a soaring U.S. dollar weighing on commodity prices as investors also assessed worries about the impact of COVID on China’s economy and energy supplies from Russia due to the Ukraine war.

Price action

West Texas Intermediate crude for June delivery
CL00,
-0.56%

CL.1,
-0.56%

CLM22,
-0.56%

fell 66 cents, or 0.6%, to $101.36 a barrel on the New York Mercantile Exchange.

June Brent crude
BRNM22,
-0.68%
,
the global benchmark, was down 79 cents, or 0.8%, at $104.53 a barrel on ICE Futures Europe. July Brent
BRN00,
-0.63%

BRNN22,
-0.63%
,
the most actively traded contract, lost 60 cents, or 0.6%, to trade at $104.35 a barrel.

June natural-gas futures
NGM22,
-1.50%

fell 1.8% to $7.209 per million British thermal units.

June gasoline
RBM22,
-0.40%

fell 0.4% to $3.4007 a gallon, while June heating oil
HOM22,
-1.13%

was down 1.1% at $3.8954 a gallon.

Market drivers

The U.S. benchmark has traded around the $100-a-barrel threshold for several weeks, with worries over the spread of COVID-19 in Beijing triggering fears of a broad lockdown of the nation’s capital. A lengthy lockdown of Shanghai, the nation’s largest city and a commercial hub, has been a negative for crude, undercutting demand expectations.

Meanwhile, energy-related tensions resulting from Russia’s invasion of Ukraine have escalated. Russia earlier this week cut off natural-gas deliveries to Poland and Bulgaria after those countries refused to make payments in rubles, as demanded by Russian President Vladimir Putin.

That’s raised fears Russia, hit hard by Western sanctions, could move to cut off other European countries. Meanwhile, Russian Finance Minister Anton Siluanov on Wednesday said the country’s oil output could fall 17% this year due to Western sanctions, The Wall Street Journal reported. The U.S. and U.K. have moved to ban imports of Russian crude, while European Union countries have weighed following suit. Meanwhile, many oil trading firms were already shunning Russian crude out of fear of running afoul of existing sanctions.

And then there’s the dollar. The ICE U.S. Dollar Index
DXY,
+0.83%
,
a measure of the currency against a basket of six major rivals, rose to a five-year high as the Japanese yen
USDJPY,
+1.91%

plunged after the Bank of Japan pledged to buy unlimited amounts of 10-year fixed-rate Japanese Government Bonds to defend a 0.25% yield level. The euro
EURUSD,
-0.72%

also remained under pressure, slipping below $1.05 for the first time in five years.

Read: Dollar domination continues, as yen slumps to two-decade low

“Crude Oil is having trouble gaining traction in recent days with the Dollar Index posting new multi-year highs on a seemingly daily basis,” said Robert Yawger, executive director of energy futures at Mizuho Securities, in a note.

“With the Fed poised to increase rates by 50 basis points [next week], with the possibility of a 75 basis point increase, it would seem highly unlikely that we have seen the last of new multi-year increases in the dollar,” he wrote. A stronger dollar makes it more expensive to users of other currencies to buy dollar-priced commodities.

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