Oil prices dip as dollar soars, U.S. crude stocks edge higher

© Reuters. FILE PHOTO: Workers walk as oil pumps are seen in the background in the Uzen oil and gas field in the Mangistau Region of Kazakhstan November 13, 2021. REUTERS/Pavel Mikheyev

By David Gaffen

NEW YORK (Reuters) - Oil prices dipped on Wednesday as a soaring U.S. dollar made barrels more expensive and coronavirus outbreaks in China clouded the economic outlook in the world's biggest importer of crude oil.

Supplies remained tight in the world's largest oil producer, the United States, as government data showed crude stockpiles rose modestly last week as fuel inventories declined.

Brent crude futures fell by $1.08, or 1%, to $103.91 a barrel as of 12:40 p.m. ET (1640 GMT). U.S. West Texas Intermediate crude futures dropped $1.19 a barrel to $100.51.

The dollar rose to its highest in five years, making oil purchases more expensive for holders of other currencies. [FRX/]

"This (is) a risk-off environment with a stronger U.S. dollar and mobility restrictions in the second largest oil consumer, China," said UBS commodity analyst Giovanni Stauvono.

The U.S. Energy Information Administration said crude stocks rose by just 692,000 barrels last week, short of expectations, while distillate inventories, which include diesel and jet fuel, fell to their lowest since May 2008. [EIA/S]

Energy markets worldwide are dealing with massive disruptions to supply following Russia's invasion of Ukraine and subsequent sanctions slapped on Moscow by the United States and its allies. U.K. major Shell (LON:RDSa) said it would no longer accept refined oil blended with Russian products, according to trading documents, while Exxon Mobil (NYSE:XOM) said it had declared force majeure on its Sakhalin-1 operations in the far eastern part of Russia.

This week, Moscow escalated its use of energy as a cudgel against countries opposed to the invasion. Russian energy giant Gazprom (MCX:GAZP) said on Wednesday it halted gas supplies to Bulgaria and Poland.

European Commission Chief Ursula von der Leyen said Russia was using fossil fuels to blackmail the EU but added the era of Russian fossil fuels in Europe was coming to an end.

Germany, which has relied heavily on Russia energy, faces a hit to economic growth as it pushes ahead with attempts to become independent of Russian gas and oil imports.

Germany's economy minister said plans to take control of the PCK Schwedt refinery, majority-owned by Rosneft and the last big buyer of Russian crude in Germany, were progressing.

China's central bank said it would step up monetary policy support as Beijing races to stamp out a nascent COVID-19 outbreak in the capital and avert the same type of debilitating city-wide lockdown Shanghai has been under for a month.