- The Writer holds an MSc from Creighton University and is a Ph.D. candidate in the Turkish National Police Academy
Brent oil continues its upward trend heading towards levels over $65 amid expectations of OPEC and non-OPEC participants prolonging the oil cut agreement beyond March 2018 to the end of 2018 at the OPEC annual meeting on Nov 30.
The detentions of 11 princes, four sitting ministers and a dozen former ministers in a massive anti-corruption sweep at the weekend in Saudi Arabia pushed prices up and signaled instability in the kingdom. This accordingly raised concerns over oil production in the country. The missile attack on Saudi Arabia from Yemen at the weekend, in which the Saudis blame Iran, created greater tension between two of the biggest oil exporters; Saudi Arabia and Iran and was another factor for the recent price hikes. The oil price dynamic was particularly hit by geopolitical concerns in the market this week with expectations of a downturn in production. This was previously seen during the Arab-Israeli war in the 1970s, which resulted in OPEC’s oil cut to westerns countries. The recent Saudi purge, the extension of the oil supply deal and the easing of the U.S. dollar could help the oil price recuperate.
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 slight rise to $60.90 through a decline in the U.S. dollar index and upon anticipation of the OPEC and non-OPEC oil cut extension.
On Tuesday, the price continued its ascent to $61.37 with a slight decrease in the U.S. dollar index and the weekly fall of 5.08 million barrels in U.S. oil inventories, as detailed in the weekly API report.
The price dropped to $60.49 due to the recovery of U.S. crude oil production by about 50 thousand barrels to over 9.55 million barrels per day for the week ending Oct. 27, as reported by the EIA, as well as a rise in the U.S. dollar index on Wednesday.
However, it increased to $60.62 through a slight slump in the dollar index on Thursday and settled at $62.07 at the end of the week with an oilrig count drop of eight, as reported by Baker Hughes at the end of the week.
The political developments that have positively impacted oil prices over the past year and especially since U.S. President Donald Trump’s election include:-
- The agreement by 14 OPEC countries led by Saudi Arabia and 10 non-OPEC led by Russia in late November to cut 1.8 million barrels per day of oil cut together for five months starting January 2017
- In December 2016, Trump appointed Exxon Mobil CEO, Rex Tillerson, as Secretary of State. Oil markets perceived that the Trump administration would pursue an oil-oriented foreign policy during his term.
- In May 2017, OPEC and non-OPEC countries agreed on an extension of the oil cut agreement for another nine months to the end of March 2018.
- In June 2017, Saudi Arabia, United Arab Emirates, Bahrain and Egypt cut their relations with Qatar and put an embargo on the country threatening oil exports.
- In July 2017, the U.S. imposed sanctions on Venezuelan President Maduro after his election win, which hit the founding member of OPEC’s exports.
- On Sept. 25, 2017, the Kurdish Regional Government (KRG)'s illegitimate referendum in northern Iraq was held resulting in the souring of relations between the semi-autonomous oil-rich northern Iraqi region of the KRG and the central government in Baghdad. Subsequently, Iraqi federal forces took over 40 oil wells from Kurdish Peshmerga forces, affecting temporary production and oil transfer.
- In October 2017, Trump confirmed that Iran was not in compliance with the P5 preliminary nuclear agreement signed in 2015 and threatened to terminate it.
- In November 2017, the missile attack on Saudi Arabia from Yemen in which Saudi Arabia blamed Iran, along with the Saudi corruption purge and detention of high-level officials provoked fear in the market of further unrest in the world’s biggest oil exporter.
Given that further unrest is likely in Saudi Arabia, Brent oil could reach over $65 despite the rise in the U.S. dollar index, an increase in U.S. oil inventories, or even in U.S. crude oil production. If not, declines towards $62 could transpire.
- Opinions expressed in this piece are the author’s own and do not necessarily reflect Anadolu Agency's editorial policy.