Oil prices settle lower as supply concerns, stronger dollar weigh

Investing.com — Oil prices settled lower on Tuesday, as rising supply concerns returned to focus after Libya resumed production at a key oilfield, while a stronger dollar also weighed on sentiment offsetting ongoing geopolitical tensions. 

By 14:30 ET (19.30 GMT), the futures traded 0.5% lower at $74.37 a barrel and the contract dropped 0.6% to $79.55 a barrel.

Supply concerns return to focus   

Production at the Sharara oilfield in Libya restarted at the start of this week after the end of protests that had halted output since early this month.

“The restart of the operations came after the local governments agreed to meet most of the demands from protestors,” said analysts at ING, in a note. “Crude oil production at the oil field stood at around 270Mbbls/d earlier.”

In the U.S., meanwhile, North Dakota’s pipeline authority estimating that oil production in the region was down around 250,000 to 300,000 barrels a day as of Tuesday.

”The extreme cold weather in the US has also impacted refining operations in the country with around 15% of refining capacity in the Gulf Coast region reported to be offline as of last Friday,” said analysts at ING, in a note.

The weather-induced shutdowns over the last week could see a drop in crude inventories in Tuesday’s weekly report, due later in the session.

Middle East unrest provides support

Providing support for the crude markets remains the volatile situation in the Middle East, potentially hitting output from this oil-rich region.

The war between Israel and Hamas in Gaza rages on, and the U.S. and British forces carried out a second joint round of strikes on Houthi positions in Yemen on Monday night.

The Iran-backed Houthi militants have been threatening shipping in the Red Sea, a crucial artery for shipping between Europe and Asia.

Dollar climbs as bets for March Fed rate cut continue to Fade

The advanced to keep lid on oil prices as investors rethink bets on a March rate cut following a slew of upbeat economic data so far this month. 

A stronger dollar makes oil, priced in the U.S. dollars, more expensive in other currencies. That weighs on demand, which is already under pressure as rising Covid-19 infections threaten the global recovery.

Only about 40% of traders continue to expect a rate cut in March, compared with about 80% earlier this month, according to Investing.com’s Fed Rate Monitor Tool. Still, the rate-cut odds could be in for a further swing as investors look ahead to key economic updates this week including fourth-quarter data due on Thursday, and the data, Fed’s preferred inflation gauge, due on Friday. 

The data will arrive with just a week to go until the Fed’s next interest decision on Jan. 31. 

(Peter Nurse, Ambar Warrick contributed to this article.)