Crude oil prices drop 2% on strong US dollar and interest rate concerns

Crude oil prices turned lower on Monday as the US dollar strengthened as investors mulled over a possible May interest rate hike by the US Federal Reserve, which could dampen economic recovery hopes.

Brent crude futures fell $1.55, or 1.8 per cent, to settle at $84.76 a barrel, while US West Texas Intermediate crude dropped $1.69, or 2.1 per cent, at $80.83 a barrel.

Both contracts notched their fourth weekly gain in a row last week, the longest such streak since mid-2022.

The US dollar index has been strengthening alongside interest rate hikes, making dollar-denominated oil more expensive for holders of other currencies. It gained around 0.6 per cent on Monday.

Traders are betting the Fed will raise its lending rate in May by another quarter of a percentage point and have pushed out to late this year expectations of a rate cut, as typically occurs in a slowdown.

Meanwhile, the release of China's first-quarter gross domestic product (GDP) data at 0200 GMT on Tuesday is expected to be positive for commodity prices, with the International Energy Agency (IEA) forecasting it will account for most of 2023 demand growth.

However, the IEA also warned in its monthly report that output cuts announced by OPEC+ producers risked exacerbating an oil supply deficit expected in the second half of this year and could hurt consumers and global economic recovery.

The Group of Seven (G7) coalition will keep a $60 per barrel price cap on seaborne Russian oil, a coalition official said, despite rising global crude prices and calls by some countries for a lower price cap to restrict Moscow's revenues.

In Saudi Arabia, crude oil exports in February fell to 7.455 million bpd from 7.658 million bpd in January, official data showed on Monday.

US shale crude oil production in the seven biggest shale basins is expected to rise in May by 49,000 bpd to 9.33 million bpd, the highest on record, data from the Energy Information Administration showed on Monday.

With Reuters Inputs