- The Writer holds an MSc from Creighton University and is a PHD candidate in the Turkish National Police Academy
Brent oil prices are trying to recover losses from concerns on the possibility of the lack of extension of the OPEC oil cut agreement for the second half of the year. In addition, risks of a growing global surplus because of prices over $50 per barrel have also raised concerns. However, the relatively weak U.S. dollar index after the anticipated Fed’s interested rate hike ensured that prices were kept over $50. It is now more apparent that the compliance ratio to OPEC and non-OPEC’s oil cut agreement is becoming more significant for further price recuperation.
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 started the week with a slight drop to $51.35 due to the rise in the U.S. Baker Hughes rig count from the previous week and a slight increase in the U.S. dollar index. Subsequently, oil prices further dropped to $50.92 due to the rise in the U.S. dollar index with expectations of an interest rate hike before the Federal Open Market Committee (FOMC) meeting.
Oil prices regained losses to $51.81 through the sharp decline in the U.S. dollar index after the FED’s anticipated interest rate hike and the slight decrease in U.S. oil inventories in the weekly American Petroleum Institute (API) and Energy Information Administration (EIA) reports.
However, concerns over the global oil surplus grew due to growing U.S. oil inventories. Despite the weakening U.S. dollar index and the rise in U.S. Baker Hughes rig count, prices halted their rise to $51.74 and settled at $51.76 with a slight increase at the end of the week. In brief, the relatively weak U.S. dollar after the FOMC meeting last week helped stem sharp declines from the previous week.
Last week’s energy ministers’ speeches raised questions on the possibility of an extension on the oil cut agreement. Saudi Arabia's Energy Minister, the Kuwaiti and Iraqi oil ministers tried to quell concerns over the possibility of not having a further oil curb agreement for the second half of the year. Saudi Arabia Energy Minister Khalid Al-Falih in his speech during IHS CERAWEEK one week previously signaled that a further oil curb agreement was not on the cards.
Furthermore, Russian Energy Minister Novak stated that their oil production is reaching their agreed reduction level. As a result, oil markets need to ascertain if all members have conformed to their promised cuts as detailed in February’s Joint Ministerial Monitoring Committee (JMMC), which will be released this week. The last report in January revealed 86 percent conformity and if the results from February’s report reveal a higher compliance level, prices could be pushed higher.
The Fed increased its target range from 0.50-0.75 to 0.75-1.00 as anticipated, but the U.S. dollar index sharply declined right after the interest rate hike. According to the Fed’s projection for 2017, two more interest rate hikes are possible within the year, but the inflation rate and its prediction will be pivotal for this since the current employment data is strong. On the other hand, the euro has become strong as a result of the election results in Holland. The anticipated result of the upcoming election in France promises the likelihood of greater European Union unity, which is good news for developments in raising oil prices.
In brief, the U.S. dollar index offsets the plunge in oil prices. The further recovery in oil prices would be supported if a high compliance ratio to the oil cut deal were revealed in this week’s JMMC report. OPEC and non-OPEC members need to reassure oil markets that an oil glut is unlikely. Considering all the above developments, Brent prices could reach $53 and WTI could reach $50 this week, but levels above this would be needed to see further upsurges.
- Opinions expressed in this piece are the author’s own and do not necessarily reflect Anadolu Agency's editorial policy.