Oil prices slid more than 1pc yesterday as the dollar remained near a four-month high, but worries that US President Donald Trump will pull out of the Iran nuclear deal underpinned the market.
Even with prices dipping, a strong dollar makes greenback-denominated oil more expensive to holders of other currencies including the euro.
Crude prices remain within striking distance of a more than three-year high hit in late April, and analysts said the market is sensitive to any developments on Iranian sanctions.
Rising energy prices, now around 50pc higher than at this time last year, have the potential to squeeze the eurozone's already stuttering recovery, by driving up costs across the economy.
Brent crude for July delivery was trading $1.11 lower at $73.60 by midday yesterday. The June contract expired on Monday, settling at $75.17. This time last year, crude oil was just over $50 a barrel.
Oil prices rose as Israeli Prime Minister Benjamin Netanyahu presented what he called evidence of a secret Iranian nuclear weapons programme. Tehran has denied ever seeking nuclear weapons.
But analysts said the lack of a smoking gun took some of the heat out of prices.
Olivier Jakob of PetroMatrix said the announcement "did not bring anything new to the table," and the market therefore shed some of the previous day's gains. "It shows how much the market has already priced in the expectation that Trump will not extend the waivers," he said.
President Trump has given Britain, France and Germany a May 12 deadline to fix what he views as the flaws of the 2015 nuclear deal, or he will reimpose sanctions.
The risk of the US pulling out of the Iran nuclear deal, resulting in sanctions on the producing nation, has already largely been priced in, underpinning the market, he said.
"The strength of the dollar is where the pressure is coming from," said Gene McGillian, vice president at Tradition Energy. (Reuters)