By Serdar Gürüzümcü
Oil report, May 2

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

The rise in U.S domestic oil production continues to outweigh the OPEC and non-OPEC oil cut deal. As a result, OPEC and non-OPEC countries have failed to reach and stabilize the target of increasing prices.  Oil markets are awaiting news on whether OPEC and non-OPEC countries will agree to prolong their deal for another six months after it expires at the end of June. Furthermore, the U.S. dollar remains strong even though there has been a slight drop in the U.S. index lately.

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, and the weekly U.S. Baker Hughes rig count.

Brent oil began the week beginning April 24 with a decline to $51.60 due to the rise both in the U.S. dollar index and in the U.S. Baker Hughes rig count from the previous week. However, oil prices rebounded to $52.10 through a decline in the U.S. dollar index, despite an increase in U.S. oil inventories of 0.897 million barrels compared to the decrease of 0.840 million barrels from the previous week as reported in the weekly API report on Tuesday.

Subsequently, oil prices declined to $51.82 due to the increase in the U.S. dollar index on Wednesday although a decrease in U.S. oil inventories of 3.641 million barrels compared to 1.034 million barrels from the previous week was reported in the weekly EIA report.

Oil prices continued down to $51.44 on Thursday due to the increase in the U.S. dollar index, but it settled at $51.73 at the end of the week through the decrease in the U.S. dollar index despite a nine rig count rise in the weekly U.S. Baker Hughes data.

In brief, the U.S. dollar index and oil prices moved in negative correlation last week. As a result, oil prices slightly declined with a modest increase in the U.S. dollar index.

U.S. oil production has been gradually rising to 9,265 thousand barrels per day for the week ending April 21, according to the EIA weekly U.S. field production of crude oil.  Such a sustained rise and the strong U.S. dollar is another obstacle to oil price increases despite OPEC and non-OPEC’s oil cut deal.

According to a press release last Friday on OPEC’s website, the Joint OPEC and non-OPEC Ministerial Monitoring Committee (JMMC) explained that their conformity level reached 98 percent with a 4 percent increase in March.  Such conformity levels show that OPEC and non-OPEC members are very committed to removing the global oil glut. Moreover, OPEC is set to prolong their current deal for another six months to stabilize prices. However, the rise in U.S. oil production would force further cuts in oil production even taking into account a six-month extension as high conformity would not guarantee that prices would increase.

Recent declines in the U.S. dollar index helped oil prices to stay above $51. These declines emerged from the presidential elections in France and the weak U.S. growth late in the first quarter of 2017. However, this downturn could be temporary, so increases in the U.S. dollar index could be seen with expectations of a Fed interest rate hike in the coming days. Therefore, a strong U.S. dollar index is likely to continue to put pressure on oil prices.  

Last week, Brent oil prices failed to reach $53 per barrel despite a relatively weak U.S. dollar index.  Consequently, downside risks are still a possibility, but prices over $53 this week are still viable for further increases, and if not, a drop to $50 is possible.

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

 

02 May,2017
ANALYST