- The Writer holds an MSc from Creighton University and is a Ph.D. candidate in the Turkish National Police Academy
Oil markets welcomed OPEC and non-OPEC participating countries’ decision on prolonging the existing oil cut agreement from March 2018 to December 2018. Brent oil hovered over $62 reflecting the expectation that such an agreement extension would be made prior to the Nov. 30 meeting. Meanwhile, two developments prevented prices from surging after the decision. These include the increase in the U.S. dollar after the U.S. Senate’s approval of the tax cut reform on Saturday, Dec. 2 and the resumption in operations of the U.S.’ Keystone pipeline, albeit at reduced pressure, after its closure due to a leak.
Oil markets last week will be reviewed based on the U.S. dollar index, weekly American Petroleum Institute (API) and Energy Information Administration (EIA) oil inventories, weekly EIA field production of crude oil in the U.S. and the weekly U.S. Baker Hughes rig count.
Brent oil started the week with a slight drop to $63.84 owing to a nine-oil rig count increase as reported in Baker Hughes data from the previous week and a rise in the U.S. dollar index.
Brent continued down $63.61 due to the weekly growth of 1.82 million barrels in U.S. oil inventories, as detailed in the weekly API report and a further rise in the U.S. dollar index on Tuesday.
The price fell to $63.11 due to the increase in U.S. crude oil production by 22 thousand barrels to 9.82 million barrels per day for the week ending Nov. 24, as reported by the EIA.
However, it recovered to $63.57 through prolonging the oil cut agreement of OPEC and non-OPEC participating countries on Thursday and settled at $63.73 at the end of the week with a slump in the U.S. dollar index.
Last week, oil prices increased mainly through the agreement on an extension of OPEC and non-OPEC’s oil cut pact.
OPEC members and non-OPEC participants led by Russia attended OPEC’s annual meeting last Thursday, Nov. 30 when they extended their existing oil cut agreement beyond March 2018 to the end of 2018 as expected. They said they achieved some of their targets at the beginning of their agreement, but needed to extend this to alleviate the glut of 140 million barrels of oil over the five-year average oil stocks in industrialized countries. The more-than-forecast rise in global oil demand in 2017 also helped the removal of some of the global oil surplus. However, participants noted that an agreement is up for adjustment at the next OPEC annual meeting next June, which will consider supply and demand dynamics up to then.
The U.S. dollar index recently gained value because of the U.S. Senate’s approval on a tax overhaul, and accordingly, was put on oil prices. However, this pressure is unlikely to last long because last week, the negative impact of revelations from Donald Trump’s former national security advisor, Michael Flynn, who pleaded guilty to lying to federal agents negatively impacted the dollar and heightened risks for the U.S. administration.
Furthermore, the escalation in tension between North Korea and the U.S has put pressure on the U.S. dollar index.
Based on the oil cut extension agreement until the end of 2018, Brent oil could reach levels over $65, and in the mid-term could reach $70 under a relatively weak U.S. dollar. However, if further rises in U.S. crude oil production and in oil inventories occur, declines towards $60 could be seen.
- Opinions expressed in this piece are the author’s own and do not necessarily reflect Anadolu Agency's editorial policy.