- The Writer holds an MSc from Creighton University and is a PHD candidate in the Turkish National Police Academy
Brent oil prices speedily recovered losses returning to $55 per barrel levels, the balance point one month ago. Although geopolitical concerns, which arose from the U.S. missile attack on Syria expedited this recovery, the possibility of prolonging the OPEC and non-OPEC oil cut deal with high conformity for another six months after it expires in June had more of an impact on the recovery.
Concerns that the OPEC and non-OPEC oil cut deal would not be extended after its expiry in June, had caused prices to decline sharply from $57 to $50 last month. In addition, U.S. oil inventories at record high levels and the continual weekly rise in the U.S. Baker Hughes rig counts over the past year combined with a strong U.S. dollar also contributed to the decrease. Therefore, should a decline in U.S. oil inventories and the weakening in the U.S. dollar index transpire this week, prices could reach up to $57.
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, and the weekly U.S. Baker Hughes rig count.
Brent oil started the week with a slight rise to $53.12 through optimism over the extension in the OPEC and non-OPEC deal despite the rise in the U.S. Baker Hughes rig count from the previous week and in the U.S. dollar index. Subsequently, oil prices soared to $54.17 through the decrease in U.S. oil inventories of 1.834 million barrels compared to the increase of 1.909 million barrels from the previous week in the weekly API report.
Oil prices continued their ascent to $54.36 despite the rise in U.S. oil inventories at 1.566 million barrels compared to the previous week’s 0.867 million barrels in the weekly EIA report and strong U.S. dollar.
Oil prices continued surging to $54.89 despite the increase in the U.S. dollar index, and further rose and settled at $55.24 at the end of the week after the U.S. missile attack on Syria and a ten rig count rise in the U.S. Baker Hughes data.
During the week, both oil prices and the U.S. dollar index continued to fluctuate in parallel, although there was mainly a negative correlation between them. A higher U.S dollar index stemmed further price increases through a supply and demand rebalance which began with the OPEC and non-OPEC oil cut deal. Therefore, the U.S. FED policy, which foresees two more interest rate hikes this year resulting in a strong U.S dollar, could continue to limit possible price increases.
Although geopolitical developments affect the rise in oil prices, their location is significant. Unrest and energy security risks in critical oil-rich regions of Iraq or Libya would impact the explosion of oil prices compared to Syria, which is not a major oil producer, and therefore despite the U.S. missile attacks, their impact on oil prices was limited.
In brief, Brent oil prices remained over $53 and then reached $55 as predicted over the past week. A turning point again could be seen whereby prices would reach $57 if declines in U.S. oil inventories in both the weekly API and EIA reports and the U.S. dollar index occur, and if not, a balanced price in the region of $55 could unfold.
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