Crude oil price dropped to around $63 per barrel Thursday, declining for the first time in six days after the United States Federal Reserve dampened hopes for a string of interest rate cuts and rising US output helped keep the oil market well supplied.
The oil prices had on Wednesday risen for a fifth day to over $65 per barrel, supported by a drop in US inventories and investor expectations that the US Federal Reserve would lower borrowing costs for the first time since the financial crisis more than a decade ago.
Central bankers in the US began their two-day meeting on Tuesday and were expected to cut interest rates, with President Donald Trump reiterating his call for the Fed to make a large cut.
However, the Federal Reserve reduced rates on Wednesday, but against expectations as the head of the US central bank said the move might not be the start of a lengthy series of cuts to shore up the economy against global economic weakness.
Consequently, the price of the Brent crude, the international benchmark, fell $1.08 to $63.97 a barrel, having dropped as low as $63.73 earlier in the session. United States West Texas Intermediate (WTI) crude was down $1.47 at $57.11.
Reuters reported that a rising dollar makes oil more expensive for holders of other currencies and tends to weigh on commodities priced in the US currency.
The dollar hit a two-year peak against the euro yesterday after the Fed’s decision.
The oil price drop came despite a bigger-than-expected decline in US inventories and a fall in production by the Organisation of Petroleum Exporting Countries (OPEC) in July, typically bullish drivers for prices.
But the US output rose in a market that analysts say is well supplied.
OPEC and partners including Russia, an alliance known as OPEC+, have been curbing output this year to support the market. In July, OPEC production revisited a 2011 low, helped by a further cut by Saudi Arabia, a Reuters survey showed.
But rising supplies from non-aligned producers, including the United States have offset the OPEC+ efforts.
U.S. output rebounded to 12.2 million barrels per day (bpd) from 11.3 million bpd a week earlier, government data showed on Wednesday.
Adding further downward pressure on prices was a lack of progress by the United States and China in resolving their year-long trade dispute.
Market participants were also closely watching the US-China meeting in Shanghai as both countries seek to end a year-long trade war.
However, negotiators ended talks on Wednesday and agreed to meet again in September.
Also tensions in the Middle East remain high, providing another bullish catalyst for prices, with the US formally asking Germany to join France and Britain to help to secure the Strait of Hormuz after the seizure of a British tanker by Iran.
Germany had expressed scepticism about the request.
BP Finance Chief, Brian Gilvary had said the British company had not taken any of its oil tankers through the Strait of Hormuz since a July 10 attempt by Iran to seize one of its vessels.