By Serdar Gürüzümcü
Weekly oil report from March 13

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

Oil prices finally broke away from the two-month straight run of between $55-$57 per barrel range and plummeted to below $53 since OPEC’s oil cut agreement on Nov. 30, 2016.  The overvalued U.S. dollar and concerns on raised U.S. oil production in response to prices over $50 have been reining in oil prices, but the Saudi Minister’s comments on the country’s reluctance to further cut oil in OPEC during the IHS CERAWEEK had a big impact with a sharp price decline last week.  

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 rise to $56.01 through signals from Iraqi Oil Minister Jabbar Al Liab who stated they will join OPEC if the cartel decides to further cut production along with news that Libya’s important oil exporting ports were closed due to hostilities in the country, despite a strong U.S. dollar and a small increase in the U.S. Baker Hughes rig count from the previous week.

However, oil prices slumped to $55.92 due to expectations of an increase in this week’s American Petroleum Institute (API) and Energy Information Administration (EIA) crude oil inventories reports as well as the increase in the U.S. dollar index. Furthermore, Saudi Energy Minister Khalid Al-Falih stated at IHS CERA WEEK that no agreement was made for the extension of oil cuts for the second half of the year.

Subsequently, oil prices sharply declined to $53.11 due to the high U.S. dollar index and the big increase in weekly American Petroleum Institute (API) and Energy Information Administration (EIA) crude oil inventories reports, which recorded that inventories had reached record high levels at 528 million barrels.

Oil prices slid down to $52.19 on Tuesday due to the strong U.S. dollar and concerns on global oil surplus due to growing U.S. oil inventories and with the lack of consensus between OPEC and non-OPEC to continue oil production cuts after June 2017.

Therefore, oil prices continued down and settled at $51.37 at the end of the week due to oversupply concerns and with the gradual rise of the U.S. Baker Hughes rig count over the past ten months despite the ease of the U.S. dollar index.

Minister Khalid Al-Falih claimed during IHS CERA WEEK that Saudi Arabia led the oil curb deal of OPEC and non-OPEC members by surpassing their committed cut agreement. However, he added that they would not continue to bear most of the oil cut burden at their expense on behalf of other producers. His comments raised concerns over the possibility of realizing a further oil curb for the second half of the year. Oil markets, therefore, began to factor in the likelihood of high oil surpluses after the oil cut agreement expires in June 2017.

For the strong U.S. dollar, the Federal Reserve Bank (FED) will still keep a hawkish approach towards interest rate hikes during 2017.  An interest rate hike is looking highly likely at the Federal Open Market Committee (FOMC) on March 14-15. However, the market has already anticipated a hike at this meeting and the dollar has been pushed higher. Now the more important issue at this meeting will be what the FED predicts in terms of interest rates for the rest of the year.

The support level of oil prices at above $53 per barrel over the past three and a half months has been broken this week. But this level at over $53 needs to continue for the possibility of a further upsurge; otherwise, there is a risk that prices could go below $50.

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

14 Mar,2017