- The Writer holds an MSc from Creighton University and is a Ph.D. candidate in the Turkish National Police Academy
Oil prices continue with losses due to high global oil stockpiles, particularly in the U.S. with disappointment that greater oil cuts were not made in the OPEC and non-OPEC extension deal. Furthermore, U.S. drilling activities continue to rise, which resulted in a spike in U.S. oil production. In addition, the route that the U.S. dollar index will take is still uncertain under Trump’s economy policies and with the FED’s interest hikes projections.
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 decline to $49.47 due to an eleven-count rise in the U.S. Baker Hughes rig count from the previous week and a rise in the U.S. dollar index. However, it surged to $50.12 on Tuesday through a weekly decrease of 4.62 million barrels in U.S. oil inventories as reported in the weekly API report and a decline in the U.S. dollar index.
On Wednesday, the price dropped to $48.06 due to the climb of 3.29 million barrels in U.S. oil inventories. This was in comparison to the 6.43 million barrel decrease from the previous week as reported in the weekly EIA report and the increase in the U.S. dollar index. This price decline was despite surprisingly the decreased production to 9.318 million barrels per day in the U.S. ending June 2 as reported by the U.S.’ weekly EIA crude oil production.
It continued down to $47.86 due to a rise in the U.S. dollar index on Thursday. It nonetheless regained some of its losses and settled at $48.15 at the end of the week despite an increase in the U.S. dollar index and an eight-rig count rise in the weekly U.S. Baker Hughes data.
In brief, oil prices stayed below $50 mainly due to the unexpected rise in U.S. oil inventories and with some increases in the U.S. dollar index.
With the recuperation of oil prices, the rig counts totaled 741 in the U.S. last week, which is over double the amount in May 2016 with a count of 316. However, it is incorrect to assume that U.S. oil production correlates with such a big rig count rise. According to OPEC’s monthly report in May 2017, companies are required to complete their drilling activities to satisfy their contractual requirements, however, not all are pumping oil due to low oil prices. Therefore, it is only when the new rigs are in full production with higher oil prices, that they will largely affect the U.S.’ oil output.
The U.S. dollar is still relatively weak and its trajectory is in part determined by Trump’s economic policy and the FED interest rate projections for 2017. The Fed will hold the Federal Open Market Committee (FOMC) meetings on June 13-14 to review economic and financial conditions and determine the appropriate stance of monetary policy, including the possibility of applying an interest rate hike which could impact the U.S. dollar index and put pressure on oil prices. Furthermore, uncertainty over Trump’s economy policy poses an obstacle for rises in the U.S. dollar index.
Brent oil prices remained below $50 last week. However, markets will closely watch the results of the FOMC meeting this week. Rises in oil prices towards $50 could be seen if strong declines in U.S. oil production and U.S. oil inventories occur. If not, declines below $48 are likely.
- Opinions expressed in this piece are the author’s own and do not necessarily reflect Anadolu Agency's editorial policy.