The Writer holds an MSc from Creighton University and is a Ph.D. candidate in the Turkish National Police Academy
Brent oil prices broke the $70 threshold once again, mainly supported by a reduction in surplus supplies from global inventories. This has been the main target of OPEC and non-OPEC participating countries’ oil cut deal in force since January 2017.
Although the surplus has not been completely removed, stocks are nonetheless depleting at a slow pace, ensuring the oil cut deal is still relevant. The upcoming 174th ordinary meeting on June 22 in Austria will see OPEC and non-OPEC participating countries debate whether to continue the oil cut pact extension based on their high compliance to date.
The weaker U.S. dollar is supporting the decline of surplus supplies offering more competitive pricing in multi-currency oil trading. This weak dollar could also curtail the Fed from applying as many rate hikes as previously.
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 $66.05 due to a four-count increase in U.S. oil rigs, according to Baker Hughes data.
However, with the decrease of 2.73 million barrels in U.S. inventories, as detailed in the weekly API report on Tuesday, it recovered to $67.42.
It continued its ascent to $69.47 through a decline in the U.S. dollar and the drop of 2.62 million barrels in U.S. commercial oil inventories as detailed in the weekly EIA report on Wednesday.
However, it slid down to $68.91 owing to the dollar’s recuperation and profit taking in the market on Thursday.
It surged and settled at the end of the week to $70.45. Saudi Arabia Energy Minister Khalid al-Falih’s positive comments on the future of the oil cut cooperation and a drop in the U.S. dollar index backed this price level.
Participating OPEC and non-OPEC producers continue their efforts to adhere to the oil cut deal. The OPEC and Non-OPEC Joint Ministerial Monitoring Committee (JMMC) stated on March 21 that adherence to the oil cut agreement broke a new record with a 5 percent month-on-month increase in compliance to reach 138 percent in February 2018.
The U.S. Federal Open Market Committee, which met on March 21, increased its benchmark interest rate by 0.25 percentage point to a range between 1.5 and 1.75, causing the U.S. dollar to plunge. As a result, it is likely that less interest rate hikes are set for the future, unlike previous years. And the resulting weaker dollar will be good for supporting oil prices.
This week Brent pricing should continue above $70 if a declining trend in the drawdown of global inventories continues.
- Opinions expressed in this piece are the author’s own and do not necessarily reflect Anadolu Agency's editorial policy.