Oil falls to lowest since May on economy slowdown

Oil prices fell Thursday to their lowest level in about three months after the U.S. dollar strengthened on concern that the global economic recovery might slow down and the Federal Reserve’s signals that it will scale back stimulus measures.

Brent crude oil, the international benchmark that mirror’s Nigeria oil grades, dropped 3.1% to $66.01 a barrel. West Texas Intermediate futures, a key U.S. gauge, declined 3.6% to $62.74 a barrel. Both benchmarks are on course for their lowest daily close since May.

The dollar’s advance to its strongest level since early November added to recent worries in energy markets. Investors had already grown increasingly nervous in recent days that rising Covid-19 cases are threatening to hobble the global recovery and could sap demand for oil in major economies like China.

A stronger dollar tends to put pressure on commodities denominated in the U.S. currency—such as oil and industrial metals like copper—which become more expensive for other currency holders.

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The ICE Dollar Index, which tracks the greenback against a basket of currencies, gained 0.3% Thursday. Prices of copper, nickel and tin all fell by more than 2% on Thursday.

“It’s a very nervous market, and that will probably continue until we get some clarity at Jackson Hole next week,” said Ole Hansen, head of commodity strategy at London-based Saxo Bank, referring to the annual economic symposium in Wyoming. “There is mostly a worry that strength in demand for oil has suddenly faded quite fast out of China, where economic data has been showing softness. And there’s soft mobility in the U.S. as we head into the autumn.”

Minutes released Wednesday from the Federal Reserve’s recent meeting showed that policy makers are increasingly in agreement about tapering the central bank’s asset purchases in the months ahead. That has added to bets that the Fed may also raise interest rates sooner than anticipated, making U.S. Treasurys more attractive than government bonds from Germany and Japan that offer subzero yields.

U.S. copper futures dropped 3.3% to $3.98 a pound, putting them on course for their lowest settlement since March. Prices for the metal, which are sensitive to the health of the world economy because of copper’s uses in construction and manufacturing, have fallen more than 15% from the all-time high they reached in May.

Investors’ appetite for risky assets such as stocks also ebbed as they assessed the growing threat posed by renewed lockdown measures, with many countries struggling to curb the spread of the Delta variant of coronavirus.