- The Writer holds an MSc from Creighton University and is a PHD candidate in the Turkish National Police Academy
The beginning of the New Year saw recuperated prices from the last quarter of 2016 despite the turbulent year with fluctuating oil prices. Oil traders appear very optimistic for the markets in 2017, but some uncertainties in financial markets, in the supply and demand balance and in global political environment still linger in determining oil prices.
The 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 speculations during the week:
Oil prices started the week on Tuesday since oil markets (Nymex and ICE) were closed for the holiday on Monday, while Brent future contracts dated from March 2017 began with a slight rise to $56.09 per barrel.
The rise in the U.S. dollar index offset price increases at $56.22, and the weekly API and EIA report which stated an unexpected rise in U.S. oil inventories also supported the price offset at $56.14 on Thursday Dec. 29. However, the weak dollar allowed prices over $57 and it settled at $56.82 at the end of last week due to the increase in the U.S. Baker Hughes rig count.
Last week, oil prices continued their rising trend with OPEC and non-OPEC supply curb deal which will take effect from Jan. 1, but the weekly rise in U.S. oil inventories and high U.S. dollar index countered this in the low volume market last week.
There were some significant developments on the global political side in 2016 such as the U.K. Brexit and Trump’s victory in the U.S. elections, both of which have impacted the oil trade along with OPEC and non-OPEC members supply cut backed by Russia and Saudi Arabia. Likewise, the elections in France and Germany will be followed closely by oil markets since these elections could seal the European Union’s fate, by playing an important role in global power distribution which in turn could influence the successful implementation of the oil cut deal between OPEC and non-OPEC countries.
There were also some important developments in the financial markets in 2016 including the strong U.S. dollar index. The U.S. dollar index became stronger after Trump’s win and was sustained following the Fed’s interest rate hike. Now the U.S. dollar index awaits Trump’s economy administration outlook on monetary (FED) and fiscal policy to enable both financial and oil markets to determine projections on the U.S. dollar index for the first three month-period after Trump’s inauguration.
OPEC and non-OPEC supply cut agreement was a significant development on the supply side in 2016. In addition, the rise of the U.S. Baker Hughes rig count, which lasted over the past six months with the exception of two or three weeks, the removal of sanctions against Iran, and the decline of oil sector investments over the past two years were also critical factors. The uncertainty as to whether global oil reserves will be sufficient to cover demand has largely been eradicated because oil exploration is still continuing despite low prices.
The first half of 2016 saw much speculation as to whether an OPEC deal would be agreed and fears that the rise of the rig count in the U.S. could lead to oil overproduction were evident. Iran’s aim to bolster its oil and gas production through the opening of new bids for exploration resulted in international interest, but nonetheless, this process after the bid process is unlikely to be completed in the short term.
Furthermore, the continuation of oil sector investments for 2017 will be assured if oil prices remain high above $60 per barrel.
Oil demand is gradually increasing but not as much as in past years while oil demand in emerging markets is still awaiting what will happen with the U.S. economy with Trump as president.
In brief, Brent oil prices have been getting closer to $60 through supply cuts in spite of the high U.S. dollar index as forecasted in the latest reports. Therefore, the path of the U.S. dollar index will be critical for price movements over $60 per barrel.
- Opinions expressed in this piece are the author’s own and do not necessarily reflect Anadolu Agency's editorial policy.