- The Writer holds an MSc from Creighton University and is a PHD candidate in the Turkish National Police Academy
Brent oil prices are struggling to recuperate losses occurred over the past two weeks due to concerns of the growing global surplus and the possibility that OPEC and non-OPEC members will not prolong the oil cut agreement. However, the relatively weak U.S. dollar index and the high conformity level as per OPEC’s Joint Technical Committee’s (JTC) February report continues to help keep Brent oil prices over $50.
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 began the week with a slight fall to $51.62 due to a small increase in the U.S. dollar index and the rise in the U.S. Baker Hughes rig count from the previous week. Thereafter, oil prices further declined to $50.96 due to the rise in U.S. oil inventories in the weekly American Petroleum Institute (API) despite the sharp decrease in the U.S. dollar index.
Oil prices continued down to $50.64 due to the record high level of U.S. oil inventories in the weekly Energy Information Administration (EIA) reports in spite of further declines in the U.S. dollar index.
While the fall in oil prices dropped to $50.56 due to a minor increase in the U.S. dollar index, it regained some of its losses and settled at $50.80 at the end of the week through a weaker U.S. dollar despite a rise in the Baker Hughes rig count.
The Joint OPEC and non-OPEC Ministerial Monitoring Committee (JMMC) held its third meeting last weekend in Kuwait where the OPEC and non-OPEC JTC presented its February report of conformity to the oil cut deal. According to the report, the parties’ compliance level for February was 94 percent compared to the first report in January which saw 86 percent compliance. The results were as expected since Russia had already confirmed that its compliance level would be higher than in January.
If Russia’s and other non-OPEC members’ conformity level increase over the next few months, it is possible that a conformity level of 100 percent can be realized as projected at the outset of the agreement. However, the compliance level did not result in increased oil prices but stemmed the further fall in oil prices below $50 as oil markets focused on U.S. oil inventories at record high levels and the possibility of an extension of the oil cut agreement.
The JMMC sought a consensus to ascertain if OPEC and non-OPEC members favored a six- month extension to the oil cut agreement before the next meeting in April. It appears as if OPEC members are ready for an extension, but Russia and non-OPEC countries, led by Russia, may need more time to consider their decisions. Oil markets with sustained low prices could force members to prolong the agreement at the annual OPEC meeting on May 25, 2017. Additionally, U.S. oil inventories have reached a record high level of 533 million barrels, according to the EIA weekly report ending March 17. A relatively weak U.S. dollar has helped oil prices so far, but this trend cannot continue up to the JMMC meeting in April or the OPEC meeting in May.
The U.S. dollar index began its ascent right after Donald Trump’s election win but it began to ease off after his inauguration. It has since weakened because Trump was unable to implement the expansionary fiscal policies, including tax reforms or the removal of Obamacare. Nonetheless, the U.S. dollar is still overvalued and is still putting pressure on oil prices.
In brief, Brent oil prices have a new short-term balance range between $50 and $53, but a weaker U.S. dollar index would be needed to see prices over $53.
- Opinions expressed in this piece are the author’s own and do not necessarily reflect Anadolu Agency's editorial policy.