- The Writer holds an MSc from Creighton University and is a Ph.D. candidate in the Turkish National Police Academy
Brent oil is hovering over $63 in the lead up to OPEC鈥檚 annual meeting on Nov. 30 in which the existing oil cut agreement will likely be extended by OPEC and non-OPEC participating countries beyond March 2018. OPEC and non-OPEC producers would like to achieve their aim of draining the oil surplus in global oil stockpiles from the five-year average of industrialized countries. Declines in Venezuelan oil production, in oil exports from Iraq and the temporary closure of the U.S.鈥� Keystone pipeline due to a leak, have helped sustain relatively high oil prices for now. The relatively weak U.S. dollar seen since Trump鈥檚 inauguration has also supported high oil prices by making international trade more competitively priced, and accordingly, increasing global oil demand. However, in response to the price hikes, the subsequent rise in U.S. oil production has become a big threat to the oil cut extension.
Oil markets last week will be reviewed based on the U.S. dollar index, weekly American Petroleum Institute (API) and Energy Information Administration (EIA) oil inventories, weekly EIA field production of crude oil in the U.S. and the weekly U.S. Baker Hughes rig count.
Brent oil started the week with a fall to $62.22 due to a rise in the U.S. dollar index that raised concerns over oil demand.
However, the price increased to $62.57 through the weekly decline of 6.35 million barrels in U.S. oil inventories, as detailed in the weekly API report and a fall in the U.S. dollar index on Tuesday.
Brent surged to $63.32 through a weekly drop of 1.85 million barrels in U.S. commercial oil inventories, according to the EIA weekly report on Wednesday and further declines in the U.S. dollar index.
It continued its ascent to $63.55 through the ongoing closure of the Keystone pipeline after a 200,000-gallon leak in South Dakota on Thursday and settled at $63.86 at the end of the week with a slump in the U.S. dollar index.
Last week, oil prices increased mainly through losses in the U.S. dollar index and the closure of the Keystone pipeline.
OPEC members will hold their annual meeting this week on Thursday, Nov. 30 when it is expected that they will extend their existing oil cut agreement beyond March 2018 to the end of 2018 in collaboration with non-OPEC participants led by Russia. They achieved almost half of their target to remove 340 million barrels of oil surplus over the five-year average oil stocks in industrialized countries. However, the duration and timing of the extension decision are up for debate. OPEC countries, especially Saudi Arabia, are taking this problem very seriously and are prepared to do whatever is necessary to solve this problem in light of rising oil production in the U.S., Canada, Brazil and Mexico. They are also aware that the oil cut agreement is not the only reason for the recent price increases. There were many environmental and geopolitical events this year including Hurricane Harvey in the U.S., Tropical Storm Nate, the drop in Iraqi exports over the dispute in Kirkuk between the Kurdish Regional Government and the Central government that all contributed to a reduction in global oil production, which had a positive impact on oil prices.
The U.S. dollar, which has lost value since Trump鈥檚 inauguration, has played a crucial role in price increases, but to keep prices up, the oil cut pact extension even beyond 2018 is necessary, and OPEC and non-OPEC countries have to sustain their cooperation to achieve this.
Despite the Fed鈥檚 two interest rate hikes this year, the U.S. dollar has remained weak, supported by Trump鈥檚 competitiveness in foreign trade. Furthermore, the Europe Central Bank has also helped by decreasing the value of bond buying programs from 鈧�60 billion to 鈧�30 billion. As a result, oil prices have been buoyed with a weak dollar and this trend is set to continue through 2018.
Brent oil could reach over $65 on the decision to prolong the oil cut agreement until the end of 2018 at OPEC鈥檚 annual meeting this week. 聽However, further rises in U.S. crude oil production and in U.S. oil inventories could prevent a further rise over $65. The next peak over the mid-term with an extension to the oil cut pact could be $70
- Opinions expressed in this piece are the author鈥檚 own and do not necessarily reflect Anadolu Agency's editorial policy