- The Writer holds an MSc from Creighton University and is a PHD candidate in the Turkish National Police Academy
Brent oil prices continue to head towards over $55 per barrel mark through compliance with OPEC and non-OPEC members’ oil cut agreement. However, the uncertainty of a possible rise in U.S. oil production in response to the gradual rise in U.S. Baker Hughes rig count over the past nine months has curtailed prices from surging above $60 per barrel. Meanwhile, a strong U.S. dollar after Donald Trump’s election win last Nov. 10, and its ensuing weakening after his inauguration on Jan. 20 resulted in oil prices at around $57 per barrel.
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 U.S. Baker Hughes rig count as well as weekly speculation.
Brent oil prices started the week with a surge to $56.18 through optimism over high compliance of OPEC and non-OPEC members to the oil cut agreement, despite the small increase in the U.S. Baker Hughes rig count from the previous week.
Subsequently, this surge continued up to $56.66 with OPEC Secretary General Mohammad Barkindo’s statement that OPEC’S conformity to the oil cut agreement was over ninety percent, as per January’s data, despite increases in the U.S. dollar index.
However, prices sharply declined to $55.84 before the release of weekly API and EIA reports with the expectation of a strong increase in U.S. oil inventories. But prices regained losses to $56.58 through the fall in U.S. oil inventories weekly API report and the small increase in U.S oil inventories in the weekly EIA report.
Unfortunately, the strong U.S. dollar and rise in the U.S. Baker Hughes rig count stemmed the oil price rise and prices settled at $55.99 at the end of the week.
The Joint OPEC and Non-OPEC Ministerial Monitoring Committee (JMMC) explained that the conformity level of OPEC and Non-OPEC should be 1.8 million barrels per day in its report. In the OPEC press release on Feb. 24, 1017, according to the Joint Technical Committee (JTC) report for January 2017, JMMC noted a compliance ratio of 86 percent and is awaiting 100 percent conformity in its next reports. Considering Barkindo’s speech that OPEC’s conformity was over 90 percent on Feb. 21, there is a less conformity ratio of non-OPEC members, which could well impair oil traders’ satisfaction with the oil cut agreement.
Trump intends to increase military and infrastructure expenditure and apply tax cuts to revive the U.S. economy. Moreover, he wants to retain a weak U.S. dollar to overcome the U.S.’ foreign trade deficit. However, the U.S. Federal Reserve (Fed) has its own plans to apply three interest rate hikes in 2017. However, whether this will put into practice remains questionable as the Fed applied interest rate hikes twice over the past two years and could well do the same again. One of the Fed’s critical outcomes in its monetary tightening, which resulted in a high U.S. dollar index over the past three years, was the sharp decline in oil prices, so the Fed’s interest rate decision will be also significant for oil prices in 2017.
The rises in U.S. oil inventories in the weekly API and EIA reports and in the U.S. Baker Hughes rig count began to slow down. Therefore the oil market will focus attention on global oil demand, and the route that the U.S. dollar index will take to influence oil prices in the short term.
Brent oil prices moved in a narrow range between $55 and $57 over the past five weeks, and accordingly, a price range of between $55 and $60 in the short term is possible.
- Opinions expressed in this piece are the author’s own and do not necessarily reflect Anadolu Agency's editorial policy.