- The Writer holds an MSc from Creighton University and is a Ph.D. candidate in the Turkish National Police Academy
The Brent oil price was boosted to over $48 towards the $50 level mostly due to the drop in U.S. oil production. However, sharp declines in the U.S. dollar index because of the rise in the Euro, backed by European Central Bank (ECB) and the anticipation of an inflation rise in the European Union alleviated pressure on oil prices for now. Furthermore, the high conformity level of OPEC and non-OPEC cutting production by more than they pledged in the current agreement also supported prices.
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 began the week with a slight increase to $45.83 despite gains in the U.S. dollar index and an eleven-count rise in the U.S. Baker Hughes rig count from the previous week. It continued up to $46.65 on Tuesday through a sharp decline in the U.S. dollar index and in spite of a weekly increase of 0.851 million barrels in U.S. oil inventories as reported in the weekly API report.
On Wednesday, it jumped to $47.31 due to the surprising decrease in production by 100 thousand barrels per day to 9.25 million barrels per day in the U.S. ending June 23 as reported by the U.S.’ weekly EIA crude oil production. A further decline in the U.S. dollar index, despite the increase of 0.118 million barrels in U.S oil inventories as reported by the Energy Information Administration (EIA) weekly report also sustained higher prices.
However, on Thursday it jumped to $47.42 through further declines in the U.S. dollar index and settled at $47.92 through a two-count drop in the weekly U.S. Baker Hughes data, despite a slight rise in the U.S. dollar index at the end of the week.
In brief, oil price rebounded to $48 mainly due to the drop in U.S crude oil production and gained some support from declines in the U.S. dollar index last week.
Oil production in the U.S. increased by 900 thousand barrels per day to 9.35 million barrels per day between mid-October 2016 and mid-June 2017. Such production rises outweighed the impact on oil prices of OPEC and non-OPEC’s oil cut agreement. However, the tropical storm that occurred in the Gulf of Mexico would contribute to the drop of 100 thousand barrels per day in U.S. oil production ending June 23. Therefore, as this setback may be temporary, U.S crude oil production reflected in upcoming weekly reports could show rises.
The Joint OPEC and non-OPEC Ministerial Monitoring Committee (JMMC) reported May’s conformity levels in the existing oil cut agreement. According to the JMMC, this level reached 106 percent with an increase of 4 percent from April, showing the strong cooperation between OPEC and non-OPEC producers in attempting to balance oil markets. Despite the better-than-projected conformity level, such cooperation was insufficient for targeting the maintaining of prices over $50. Consequently, further cuts could be agreed in their next meeting in Moscow on July 24, 2017.
The U.S. dollar index, which has had one of the biggest impacts on oil prices, has on occasion seen sharp increases through the Fed’s interest rate hikes, but lately, it has been relatively weak due to the gain in the Euro with the ECB’s forecasts of inflation rises in the EU. Therefore, declines in the U.S. dollar index are currently supporting oil prices even though it is overvalued.
Considering the developments above, oil markets will continue to closely watch changes in the U.S. dollar index and in U.S. oil production. Rises in the Brent oil price to over $50 could be seen if strong declines in U.S. oil production and U.S. oil inventories occur. If not, declines towards $48 are likely.
- Opinions expressed in this piece are the author’s own and do not necessarily reflect Anadolu Agency's editorial policy.