- The Writer holds an MSc from Creighton University and is a PHD candidate in the Turkish National Police Academy
When Donald Trump finally took office on Jan. 20, the U.S. dollar index started to weaken, resulting in the easing of oil prices. In addition, the Joint Ministerial Monitoring Committee (JMMC) has officially inaugurated its works on Sunday, Jan. 22, 2017 to monitor oil production levels as per OPEC’s output cut decision. However, the rise of U.S. Baker Hughes rig counts over the past eight months and the recovery of oil prices over the past three months have not had a big impact on U.S oil production levels so far.
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.
Brent oil prices began the week with a slight rise to $55.86 through the unexpected decrease in the U.S. Baker Hughes rig count from the previous week. It subsequently fell to $55.47 due to speculation over the level of U.S. oil production. The price was kept up with the sharp decline in the U.S. dollar after Trump’s speech on Wednesday, Jan. 18, on the U.S. dollar, a scenario which is beneficial with a weaker dollar for competing in foreign trade.
A drop to $53.92 was seen especially after the announcement of higher-than-expected inflation rates, increasing the possibility of the Fed implementing interest rate hikes during the year. However, the unexpected decline in U.S. oil inventories in the weekly American Petroleum Institute (API) report halted such a fall at $54.16.
Oil prices settled at $55.49 at the end of the week with optimism over OPEC’s oil cut monitoring meeting in Vienna on Jan. 22 and the decrease in the U.S. dollar index with Trump’s inauguration despite the rise in U.S. oil inventories in the weekly EIA report and the increase in the weekly U.S. Baker Hughes rig count.
Trump’s inauguration seems to be a milestone for both the U.S. and global economy. His election campaign slogan to put the U.S. first, was followed by more such protectionist statements in his inauguration speech. He is very focused on U.S. economic growth and targets an average of 4 percent growth per year in his term. Given U.S. economic growth in recent years, this target appears unrealistic, but nonetheless, Trump appears determined to achieve this level.
As a strategy, Trump intends to devalue the U.S. dollar to rebalance its value against other currencies that the U.S. trades with. Also, he said he would apply fiscal policies such as tax incentives for infrastructure and other investments to reach his economic growth aims. These measures would be good for oil prices on the demand side, but as he intends to encourage further increases in domestic oil production while reducing imports, oil prices on the supply side would be put on a downward path.
According to OPEC’s press release, the JMMC consists of five countries, Algeria, Kuwait, Venezuela (OPEC members), and the Russian Federation and Oman (non OPEC members) which are overseeing the compliance of OPEC’s oil cut agreement on Nov. 30, 2016. The JMMC will evaluate the conformity to oil production adjustments on a monthly production data basis and present their findings to the OPEC Secretariat. The oil markets are awaiting the body’s first press release which proposes to be in the last week of each month starting from February to report on the extent of each country’s compliance.
U.S. Baker Hughes rig count surged to 551 from 316 over an eight-month period from May 2016 onwards, but such numbers are still lower than in 2015. In addition, no big developments in U.S. oil production have been made in response to such a rig count rise.
The oil markets would like to see how U.S. oil production will react to the price recuperation which occurred over past three months. However, it is hard to envisage U.S. oil production boosting in the short term.
In the past two months, oil prices have fluctuated between $53 and $60 and is likely to continue in this range in the short term. However, weakness in the U.S. dollar index after Trump’s inauguration can push oil prices over $60 if it keeps on getting weaker.
- Opinions expressed in this piece are the author’s own and do not necessarily reflect Anadolu Agency's editorial policy.