- The Writer holds an MSc from Creighton University and is a PHD candidate in the Turkish National Police Academy
Brent oil prices are still registering over $55 per barrel through the OPEC and non-OPEC members’ high conformity to the oil cut agreement despite a strong U.S. dollar. However, hawkish speeches of Federal Reserve Bank (FED) members have pushed the U.S. dollar index higher, and have put pressure on oil prices. Although there is still concern about the possible rise in U.S. oil production with prices in the range of between $53 and $58 over the past four months, nonetheless this concern was not sufficient to curb oil supplies of OPEC and non-OPEC producers.
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 weekly speculation.
Brent oil prices started the week with a slight fall to $55.93 due to a steady U.S. dollar index and a small increase in the U.S. Baker Hughes rig count from the previous week, which created anticipation that an oil production rise in the U.S. would be likely.
Thereafter, this decline continued down to $55.59 due to speculation about greater U.S. oil production, but oil prices regained losses to $56.36 through the decrease in the rise of U.S. oil inventories in the weekly API and EIA reports.
However, a sharp rise in the U.S. dollar index with the expectation of an interest rate hike from the Federal Open Market Committee (FOMC) meeting in March resulted in a sharp decline in oil prices to $55.08. But despite the rise in the U.S. Baker Hughes oil rig count, prices recuperated and settle at $55.90 at the end of the week with the weakening of the U.S. dollar index especially after FED Chair Janet Yellen’s speech in Chicago.
In brief, the fluctuations in the U.S. dollar index impacted oil prices during the week, but once again, prices moved in a narrow range, and a minimal price discrepancy was seen at the end of the week compared to $55.99 per barrel at the end of the previous week.
According to FED members and Yellen’s latest statements, there does not appear to be any obstacle in applying an interest rate hike in the FOMC meeting in March. Furthermore, President Trump has not had any objection to a rate hike, although he has repeatedly said that he prefers to have a weak U.S. dollar to be more competitive in foreign trade.
Financial markets, including oil markets, have already begun to price in a possible interest rate hike in the upcoming meeting. Therefore, the pressure from a strong U.S. dollar on oil prices is likely to endure as long as no radical change is made in the FED’s interest rate policy.
International Energy Agency presented its Oil 2017 report in CERA WEEK in Houston. The Energy Information Administration forecasts a demand surplus by 2020 if there is no revival in oil investments. As for the strong rise in the U.S.’ oil production, they predict that oil prices should reach at least $60 per barrel. Therefore, prices over $50 may not be enough to generate returns for oil investors in the U.S. The increasing popularity in the deployment of electric vehicles will also have an impact in lowering oil demand.
Brent oil prices continue to move in a narrow range between $55 and $57, while in the short term a strong U.S. dollar is reining in oil prices. Therefore, for stability in the oil market, prices over $55 per barrel would be preferable.
- Opinions expressed in this piece are the author’s own and do not necessarily reflect Anadolu Agency's editorial policy