Crude prices retreat as firm US dollar provides headwinds

New York — Oil prices settled lower March 8 as the US dollar pushed to more than three-month high, offsetting geopolitical risk concerns spurred by an overnight attack on Saudi Arabia oil infrastructure.

NYMEX April WTI settled $1.04 lower at $65.05/b, and ICE May Brent declined $1.12 to $68.24/b.

A steep rise in the value of the US dollar in recent weeks finally caught up with oil prices, analysts said, driving crude prices lower for the first time in four sessions.

The ICE US dollar index climbed to 92.34 in afternoon trading, from 91.99 on March 5 and on pace for the highest close since late November. The index has rallied roughly 2.4 percentage points since its most recent low in late February.

"The market really shrugged of the Saudi news and is primarily fixated on the move in the dollar, which is really triggering this pullback here," OANDA senior market analyst Edward Moya said. "We are also starting to see some concern that, while the US outlook is great, Europe and the emerging markets is not there yet, and higher prices could affect that. There is a growing belief that maybe move in oil has been overdone despite fundamentals pointing to higher prices."

The US Senate on March 6 passed its version of the Biden administration's $1.9 trillion pandemic relief bill, sending it back to the House of Representatives for final approval and paving the way for its passage later this month. The prospect of more stimulus, coupled with a steadily improving COVID-19 situation in most states, is supportive for the US dollar in the short term, analysts said, likely adding headwinds to further crude price increases.

The value of the dollar and dollar-denominated commodities, including oil, are typically inversely correlated.

NYMEX April RBOB settled down 1.60 cents at $2.0487/gal, and April ULSD slipped 3.55 cents to $1.9085/gal.

Oil prices had spiked overnight as the market eyed attacks on Saudi Arabian oil infrastructure.

Saudi Arabia's energy ministry reported a drone attack on the morning of March 7 that hit a petroleum storage tank at the Ras Tanura port, one of the world's largest oil shipping ports, with 33 million barrels of storage capacity and three terminals that export all of Saudi Arabia's key crude oil grades, in addition to exporting condensates and refined products.

No deaths or injuries were reported but damage included missile shrapnel landing near residences of Saudi Aramco employees, as well as an explosion that shook windows. Meanwhile the export terminal was unscathed by the attacks, which were allegedly launched by Iranian-backed Houthi rebels from Yemen.

Brent futures surged above $71/b early in the session, while WTI briefly tested the $68/b level.