- The Writer holds an MSc from Creighton University and is a Ph.D. candidate in the Turkish National Police Academy

The disappointment of OPEC and non-OPEC’s oil cut extension decision continued to impact oil price declines. The weekly incremental increase in U.S. oil production is also curtailing price rises. On the other hand, the relatively weak U.S. dollar index and declines in U.S. oil inventories with the U.S. driving season continue to limit price declines. Meanwhile, cooperation and the conformity levels of oil cut agreement participants between OPEC led by Saudi Arabia and non-OPEC led by Russia is increasing.    

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 rise to $52.29 through only a two-count rise in the U.S. Baker Hughes rig count from the previous week with no change in the U.S. dollar index. However, it slid to $51.84 on Tuesday due to the negative impacts of OPEC and non-OPEC members’ nine-month oil cut extension decision without greater oil cuts despite the weekly decrease of 8.670 million barrels in U.S. oil inventories as reported in the weekly API report on Tuesday and decline in U.S dollar index.

On Wednesday, the price dropped further to $50.31 due to the increased production to 9.342 million barrels per day in the U.S. ending May 26 as reported by the U.S.’ weekly EIA crude oil production. This price decline was despite the decrease in the U.S. dollar index and the lowering of 6.428 million barrels in U.S. oil inventories compared to 4.432 million barrels from the previous week as reported in the weekly EIA report.

However, it surged to $50.63 on Thursday with discussions that the U.S. would withdraw from the Paris climate change agreement despite a rise in the U.S. dollar index.  It nonetheless did not succeed in staying over $50 due to an eleven-count rise in the weekly U.S. Baker Hughes data and settled at $49.95 at the end of the week despite a decline in the U.S. dollar index.    

In brief, oil prices dipped below $50 due to the rise in U.S oil production that outweighed the strong declines in U.S. oil inventories and fall in the U.S. dollar index amid disappointing results from the OPEC and non-OPEC meeting.

A sixth OPEC meeting in which a Russia energy dialogue took place was held in Moscow on May 31, 2017. According to the statements from both parties, deeper cuts will be up for discussion at the next Joint Ministerial Monitoring Committee (JMMC) meeting in July. The JMMC meeting in May and April’s Joint Technical Committee (JTC) report indicated that conformity levels to the oil agreement increased to 102 percent in April from 98 percent in March, showing that realized oil cuts superseded those pledged in the agreement, which is good news for boosting oil prices.

The U.S. dollar is relatively weak but still overvalued. The latest data on U.S. inflation and unemployment was weaker than expected with Trump’s failure so far to carry out his economic plan to boost the U.S economy. Therefore, the possibility of a Fed interest rate hike in the next meeting in June is less, which in the short term supports oil prices.

Brent oil prices dipped below $50 and initially will try to recover to prices over $50. However, the markets will closely watch the changes mostly in U.S. oil production and in the U.S. oil inventories under a relatively weak U.S. dollar. Oil prices could reach over $50 if strong declines in U.S. oil production 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.