Sonali Paul

MELBOURNE, (Reuters) – Oil prices fell on Friday. This wiped out any gains made in the previous session. The dollar continued its rise on the belief that the U.S. central banks will announce plans to increase rates to control inflation.

U.S. West Texas Intermediate crude oil futures (WTI), fell 26 cents or 0.3% to $81.33 per barrel at 0128 GMT. This reversed Thursday’s 25-cent gain.

Futures dropped 25 cents or 0.3% to $82.62/barrel, ending Thursday’s gains.

The week ended with both contracts remaining roughly the same after sharp swings up and down caused by a soaring Dollar and speculation that the Biden administration may release oil from U.S. Strategic Petroleum Reserve in order to cool markets.

Justin Smirk (Westpac Senior Economist) stated that “the market is in a very balanced position.”

Although the market is tight supplied, the larger issue is the shift in the demand dynamics. The market has moved away from strong recovery driven by an increase in demand for goods, which has fuelled energy demand, to a rebound in services demand.

Positive signs are being seen on the demand side with rapid growth in air travel. However, tighter fiscal and monetary policy as well as the upcoming northern hemisphere winter may dampen the market.

As high oil prices hinder the recovery of COVID-19, the Organization of the Petroleum Exporting Countries(OPEC) cut Thursday’s world oil demand forecast by 330,000 barrels/day from the previous month.

Baden Moore, National Australia Bank’s commodities analyst, stated that the market for oil will be tight until the third quarter in 2022, as long as there is continued demand recovery.

Moore stated that OPEC+ was very savvy in managing global supply, as demand recovers after the pandemic. The group is well positoined with this view.

OPEC+ was formed by Russia, OPEC+ and its allies. It agreed last week that they would continue to increase the monthly market supply of 400,000 barrels each day.