- The Writer holds an MSc from Creighton University and is a Ph.D. candidate in the Turkish National Police Academy
The Brent oil price managed to stay over $48 with the aim of reaching over $50 through big drops in U.S. oil inventories along with a relatively weak U.S. dollar. However, sharp rises in U.S. oil production continue to halt increases in oil prices. OPEC and non-OPEC producers expressed their optimism at their Joint OPEC and non-OPEC Ministerial Monitoring Committee (JMMC) in St. Petersburg on Monday, July 24 that oil demand would rise in the second half of the year, and accordingly global oil inventories are set to decline, helping the recovery of oil prices. Meanwhile, the continuous boost in the U.S. oil rig count for over a year looks to be coming to an end raising the possibility of curtailing U.S. production. The JMMC is considering an extension of the oil cut agreement beyond the March 2018 deadline. In addition, the committee welcomed Nigeria, which was exempt from the oil cut deal in January, in joining the deal by capping or even cutting its output from 1.8 million barrels per day (bpd).
Oil markets last week will be reviewed based on the U.S. dollar index, weekly American Petroleum Institute (API) and Energy Information Administration (EIA) crude oil inventories, weekly EIA field production of crude oil in the U.S. and the weekly U.S. Baker Hughes rig count.
Brent oil price started the week with a decline to $48.42 due to fears of rising U.S. oil production and a two-count rise in the U.S. Baker Hughes rig count from the previous week, beginning July 10. This was despite a slight decrease in the U.S. dollar index. However, it jumped to $48.84 through a fall in the U.S. dollar index, and in spite of a weekly increase of 1.628 million barrels in U.S. oil inventories as reported in the weekly API report on Tuesday.
On Wednesday, it continued upwards to $49.70 through a decrease of 4.727 million barrels in U.S. oil inventories as reported by the EIA weekly report. This price increase was despite the boost in U.S. crude oil production of around 32,000 barrels per day to 9.429 million barrels per day for the week ending July 14 as reported by the U.S.’ weekly EIA crude oil production report and a slight hike in the U.S. dollar index.
However, it dropped to $49.30 despite a decline in the U.S dollar index, but settled at $48.06 at the end of the week due to rising U.S oil production and with the diminishing possibility of further oil cuts being decided at the OPEC and non-OPEC meeting on July 24. This plummet was despite a sharp decline in the U.S. dollar index and a one-rig count decline in the weekly U.S. rig count for week July 17 to 21 as outlined in Baker Hughes data.
In brief, Brent oil declined to $48 mainly through low anticipation that OPEC and non-OPEC would apply further oil cuts at their meeting on July 24 combined with rising U.S. oil production.
The JMMC met in Russia on Monday and according to the Joint Technical Committee (JTC) report at the meeting, oil markets are projected to become steady while global recuperation is set to become strong. The JTC report states that the conformity level for June was 98 percent and the rise in global oil demand would reach 2 million barrels per day in the second half of the year. During January to July of this year, the oil cut agreement ensured cuts of approximately 351 million barrels in production, which contributed to the lowering of 90 million barrels in Organization for Economic Co-operation and Development (OECD) commercial oil stocks.
The U.S. dollar index is continuing to ease off due to political disputes in the U.S. ahead of the Federal Open Market Committee (FOMC) meeting on July 25-26, 2017. The timing of a reduction in the Fed’s balance sheet, which will also impact the valuation of the U.S. dollar as well as anticipation of one more interest rate hike for 2017 will be important elements that markets will watch out for at the meeting.
Oil markets will focus on changes in U.S. oil production and U.S. oil inventories under a relatively weak U.S dollar. Rises in the Brent oil price to over $50 may be seen if strong declines in U.S. oil production and U.S. oil inventories occur. If not, declines towards $48 are likely. Oil prices are likely to move in the narrow price range between $48 and $50 within the next couple of weeks.
- Opinions expressed in this piece are the author’s own and do not necessarily reflect Anadolu Agency's editorial policy.