- The Writer holds an MSc from Creighton University and is a Ph.D. candidate in the Turkish National Police Academy
Brent oil halted its upward trend last week when it was about to reach levels over $65. This trend was halted because of the boost in U.S. crude oil production in response to the recent oil price increases and a rise in U.S. oil inventories. However, expectations of OPEC and non-OPEC participants extending the oil cut agreement beyond March 2018 at the OPEC annual meeting on Nov. 30, along with the ongoing geopolitical risks in the Middle East and a plunge in Venezuelan oil production suppressed prices from rising beyond $60. OPEC released World Oil Outlook 2017 last week with optimistic forecasts for global oil pricing and demand.
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 surge to $64.27 in view of the rising geopolitical risks in the Middle East. Lebanon Prime Minister Saad Al Hariri’s resignation contributed to this, and the corruption detentions of some Saudi princes, as well as the reported missile attack from Yemen in Saudi Arabia also triggered instability.
On Tuesday, the price recouped some of its gains and Brent saw prices of $63.69 with the easing of tension in the Middle East and a rise in the U.S. dollar index.
The price continued down to $63.49 owing to the growth of U.S. crude oil production by about 70 thousand barrels to 9.62 million barrels per day for the week ending Nov. 3, as reported by the EIA. The Energy Information Administration’s (EIA) weekly report on Wednesday reported that U.S. commercial oil inventories also saw a weekly rise of 2.23 million barrels that contributed to the price containment.
However, it rose to $63.93 through a drop in the dollar index on Thursday and settled at $63.52 at the end of the week due to an oil rig count rise of nine, as reported by Baker Hughes at the end of the week.
Last week oil prices soared mainly through increasing tension in the Middle East.
OPEC’s annual World Oil Outlook 2017 released ahead of its meeting on Nov. 30 was optimistic and focused on expectations for oil demand up to 2040. According to OPEC, oil will be the main fuel in energy and global energy demand will increase by 35 percent by 2040. Last year’s report predicted a rise in global demand by 1.7 million barrels per day to over 111 million barrels per day in 2040. However, this year’s report does not expect peak oil demand by 2040. Nonetheless, considering the increased potential usage of electric cars by this time, OPEC expects that its share of the total car fleet by 2040 will only be 12 percent.
Furthermore, it expects the share of OPEC oil output in the global oil supply will be 46 percent revised upward from 40 percent in 2016. It also predicts that demand for its crude will be 41.4 million barrels per day in 2040.
On the financial side, the U.S. dollar did not increase in value yet although there is an expectation of a possible U.S. tax cut and interest rate hike at the next Fed meeting in December. However, the downward trend in the U.S. dollar index seen since Donald Trump’s inauguration in January, along with OPEC and non-OPEC producers’ efforts to rebalance the oil market, have supported the oil price recovery this year.
Brent oil could surpass $65, amid anticipation of an oil cut agreement extension and with sustained geopolitical risks in the Middle East up to the OPEC annual meeting at the end of the month. But in the meantime, the boost in U.S. crude oil production, an increase in U.S. oil inventories, and a rise in the U.S. dollar index could pressure prices and 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.