By Serdar Gürüzümcü
Weekly oil report from Feb. 13

- The Writer holds an MSc from Creighton University and is a PHD candidate in the Turkish National Police Academy

Oil prices are continuing their rising trend over the past three months through OPEC‘s compliance to the oil cut agreement and with the halt in the increasing value of the U.S dollar index. However, some measures need to be in place to maintain such a trend. Firstly, the U.S dollar index should decrease or at least retain the current level. Secondly, OPEC’s agreement should continue for the next six months and non-OPEC’s adherence to its promise would also be significant. Finally, U.S oil production should not substantially increase in response to the boosting of the U.S. Baker Hughes rig count over the past nine months.

 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 further speculation.

Brent oil started the week with a fall to $55.72 due to the rise in the U.S. Baker Hughes rig count from the previous week and an increase in the U.S. dollar index. This drop continued to $55.05 due to the sustained increase in the U.S dollar index.

However, oil prices recuperated and rose to $55.12 when the U.S dollar index stemmed its rise despite strong hikes in U.S. oil inventories in the weekly American Petroleum Institute (API) and Energy Information Administration (EIA) reports.

Following this recovery, prices continued to regain losses to $55.63. Subsequently, in spite of the rise in the U.S. Baker Hughes oil rig count, the price surged and settled at $56.70 at the end of the week through the announcement of International Energy Agency (IEA) that OPEC members’ compliance ratio to oil cut agreement was 90 percent.

In brief, oil prices moved in a narrow range between $56.81 and $56.70, curtailed by the growth in the U.S dollar index during the week that blocked an upturn in prices.

The U.S. dollar index which rose sharply upon U.S. President Donald Trump’s election win started to weaken after his inauguration. However, the route the U.S. dollar index will take is still uncertain since Trump intends launching fiscal plans including tax incentives, which could lead to a stronger U.S. dollar, although he prefers a weak U.S dollar index to be more competitive in foreign trade. The relationship between Trump and the Federal Reserve (FED) will also be significant for the U.S. dollar index considering the FED’s governing board member Daniel Torullo’s resignation last week.

The IEA states that OPEC’s compliance ratio in the oil cut agreement is 90 percent. According to OPEC’s February monthly report, the cartel’s oil production was 32.14 million barrels per day - less than the 32.5 million barrels per day agreed on Nov. 30, 2016. Therefore, OPEC has in the main stuck to its agreement, but whether non-OPEC countries have complied remains to be seen in the OPEC Joint Ministerial Committee report.

The continuous rise of the U.S. Baker Hughes rig count over the past nine months would suggest a significant oil production rise, but according to the EIA, this has not been the case apart from surges in oil inventories over the past five weeks, figures from weekly EIA reports show. Therefore, oil markets will closely look at whether U.S. oil production increases will be critical enough to influence pricing.

Fluctuations in the U.S. dollar index, the compliance of OPEC and non-OPEC members to the oil cut agreement, and a significant surge in U.S oil production will have impacts on the setting of oil prices. Consequently, an oil price range for Brent oil between $53 and $60 will be still possible in the short term, but a much weaker U.S. dollar index seems to be a must for prices at around $60 per barrel.  

- Opinions expressed in this piece are the author’s own and do not necessarily reflect Anadolu Agency's editorial policy. 

 

15 Feb,2017
ANALYST