Oil prices slide 2% as strong US economic data boosts dollar
(Reuters) - Oil prices slid about 2% on Thursday after solid U.S. economic data spurred the dollar to a two-month high on growing expectations the U.S. Federal Reserve could raise interest rates again in June.
Brent futures fell $1.17, or 1.5%, to $75.79 a barrel by 1:23 p.m. EDT (1723 GMT), while U.S. West Texas Intermediate (WTI) crude fell $1.06, or 1.5%, to $71.77.
The U.S. dollar rose to its highest since March 17 against a basket of other currencies on reports showing lower-than-expected U.S. initial jobless claims and optimism about a possible U.S. debt ceiling deal to avert a potential default.
A stronger dollar 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.
"Good news for the economy is now bad news for the crude demand outlook as economic resilience will force the Fed to kill the economy," said Edward Moya, senior market analyst at data and analytics firm OANDA.
"Oil is becoming an easy trade, as it will track the dollar and not so much anything else," Moya said.
The strength of April U.S. economic data in addition to optimism about the debt ceiling negotiations have strengthened market expectations of a further hike, ANZ Research said in a note on Thursday.
President Joe Biden and top U.S. congressional Republican Kevin McCarthy on Wednesday underscored their determination to reach a deal to raise the federal government's $31.4-T 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 rates 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.
On the supply side, Saudi Arabia's crude oil exports rose about 1% to 7.52 million barrels per day (bpd) in March from the previous month, according to data from the Joint Organisations Data Initiative (JODI).
Kpler and Petro Logistics, which also monitor shipments, however, have said Saudi exports may have fallen in May as a voluntary production cut pledged by the kingdom and other Organization of the Petroleum Exporting Countries (OPEC) plus their allies, a group known as OPEC+, takes hold.
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