- The Writer holds an MSc from Creighton University and is a Ph.D. candidate in the Turkish National Police Academy
Last week, Brent oil price fell almost 10 percent impacted mostly by the turmoil in financial markets, a more-than-expected rebound in U.S. oil production, some recovery in the U.S. dollar index, as well as rises in U.S. oil inventories.
However, markets have begun their recovery from the recent chaos in the financial markets and the question remains if the oil markets will follow suit. The answer to this question is dependent on whether the decline trend in global oil inventories continues, as it will invariably lead to oil price increases.
The main target of OPEC and non-OPEC participating countries is to remove the oil inventory surplus over the five-year average in industrialized countries. Although a weaker U.S. dollar has helped this target by increasing global oil demand, a rise in U.S. crude oil production remains an obstacle to this aim.
Last week’s oil markets will be reviewed based on the U.S. dollar index, weekly American Petroleum Institute (API) and Energy Information Administration (EIA) oil inventories, weekly EIA crude oil production in the U.S. and weekly U.S. Baker Hughes rig count.
Brent oil began the week with a fall to $67.62 due to a rise in the U.S. dollar index and a six oil rig count rise in the U.S. from the previous week.
It continued down to $66.86 owing to turmoil in all financial markets combined with further rises in the U.S. dollar index on Tuesday.
It dropped to $65.51 due to the boost in U.S. crude oil production by 332 thousand barrels per day to 10.251 million barrels per day from the previous week ending Feb. 2 as well as the weekly rise of 1.89 million barrels in U.S. commercial oil inventories, according to the EIA’s weekly report on Wednesday.
On Thursday, it plunged to $64.81 with a relatively stronger U.S. dollar.
It dipped further and settled at $62.58 at the end of the week on Feb. 9 with a rise in the U.S. dollar index and an increase of 26 in the oil rig count, its highest weekly gain in a year, according to Baker Hughes data.
The OPEC and non-OPEC oil cut agreement and rising global oil demand, impacted by a weaker U.S. dollar index, supported the decline in global oil inventories in 2017 that began during the second half of 2017.
According to the IEA Monthly Oil Market Report in February, OECD commercial oil stockpiles dropped in December by 55.6 million barrels to 2.851 million barrels. This was only 54 million barrels over the five-year average at the end of 2017. On the other hand, OPEC’s Monthly Oil Report for February shows that OECD commercial oil was 2.888 million barrels - 109 million barrels over the five-year average at the end of 2017.
However, U.S. crude oil production increased by more than expected, especially at the beginning of this year posing a significant threat to the decline trend in global oil inventories. According to EIA Weekly U.S. Field Production of Crude Oil Report, there was an increase of 759 thousand barrels per day between the week ending Jan. 5 and the week ending Feb. 2. The EIA Short-Term Energy Outlook for February 2018 forecasts that U.S. crude oil production will be around 10.6 million barrels per day in 2018 and around 11.2 million barrels per day in 2019.
Oil markets will continue to focus on changes in U.S. oil production and commercial oil inventories, amid the recovery in financial markets. Therefore, Brent oil is likely to move between $62 and $65 this week.
- Opinions expressed in this piece are the author’s own and do not necessarily reflect Anadolu Agency's editorial policy.