Near-term gains could be capped by a stronger dollar amid rising Fed rate hike bets

Oil prices have steadied on Friday, taking a pause after a four-day rally. Brent crude has settled below $95 a barrel following yesterday’s rejection from the $95 mark. As such, oil looks set to finish the second bullish week in a row, extending its rebound from January lows seen around $82.50 in late-September.

The recent oil market rally was triggered by the OPEC+ decision to cut production targets by 2 million barrels per day, the producers’ largest reduction since 2020, in a bid to tighten global supply. Of note, following the decision, Goldman raised its 2022 Brent forecast to $104 per barrel from $99.

The initial price impact of the announced measures was solid, but limited, however, in part due to the fact that Saudi Arabia said the real supply cut would be about 1 million barrels per day. In turn, US President Biden expressed disappointment over OPEC+ plans and noted that Washington was looking at ways to keep prices from rising.

In other news, the Energy Information Administration said earlier in the week that crude oil inventories fell by 1.4 million barrels in the week ended September 30 versus +2.1 million expected. Furthermore, gasoline stocks fell 4.7 million barrels and distillate stockpiles fell 3.4 million barrels. The report was quite bullish, adding to more upbeat tone in the market.

Now that Brent crude has climbed back above $90 a barrel, the $95 handle represents the immediate barrier for the futures. However, near-term gains could be capped by a stronger dollar amid rising Fed rate hike bets triggered by fresh hawkish comments from the Fed officials.

Should the USD index finish the week above 112.50, Brent may see a deeper intraday retreat to derail the $93 level. In a wider picture, oil prices could settle in a $90-$100 range in the coming weeks of months, while a more significant ascent is not expected due to persisting recession concerns.


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