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Oil edges higher as demand expectations offset dollar strength

A pumpjack is shown outside the Midland-Odessa area in the Permian basin in Texas, July 17, 2018.

Liz Hampton | Reuters

Oil prices firmed slightly on Monday as traders weighed support from expected summer demand and geopolitical tensions against a stronger dollar.

Brent crude futures were up 15 cents, or 0.2%, at $85.39 a barrel by 0850 GMT. U.S. West Texas Intermediate crude futures were at $80.86 a barrel, up 13 cents, or 0.2%. Both benchmarks gained about 3% last week for their second consecutive weekly gains.

“The chief underlying reason behind the price strength … is the growing confidence that global oil inventories will inevitably plunge during the summer in the northern hemisphere,” said Tamas Varga of oil broker PVM, referring to seasonal demand for oil products.

Geopolitical risks in the Middle East and a ramp-up in Ukrainian drone attacks on Russian refineries are also underpinning oil prices.

EU countries on Monday agreed a new package of sanctions against Russia over its war in Ukraine, including a ban on reloading Russian liquefied natural gas (LNG) in the EU for further shipment to third countries.

However, a strengthening U.S. currency has made dollar-denominated commodities less attractive for holders of other currencies.

“The U.S. dollar … appears to have broken higher following better U.S. PMI data on Friday night and political concerns ahead of the French election,” said IG analyst Tony Sycamore.

The dollar index, measuring performance against six major currencies, climbed on Friday and was up slightly on Monday after data showed U.S. business activity at a 26-month high in June.

In Ecuador, state oil company Petroecuador has declared force majeure on deliveries of Napo heavy crude for export after the shutdown of a key pipeline and oil wells owing to heavy rain, sources said on Friday.

In the United States, the number of operating oil rigs fell by three to 485 last week, the lowest since January 2022, Baker Hughes said in a report on Friday.

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