- The Writer holds聽an MSc from Creighton University and is聽a PHD candidate in the Turkish National Police Academy
Oil prices are still on track to reach $60 with OPEC and non-OPEC members鈥� oil cut agreement despite a strong U.S. dollar. Oil traders are awaiting information on non-OPEC鈥檚 compliance with the oil cut later in February to track the deal鈥檚 success.
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 sharp decline to $55.59 due to the increase in the U.S. Baker Hughes rig count from the previous week and a rise in the U.S. dollar index. However, oil prices recuperated and rose to $55.97 through the high ratio of OPEC compliance to its oil cut agreement, however, the rise in the U.S. dollar index stemmed this upward trend.
Subsequently, the high U.S. dollar index and strong surges in U.S. oil inventories reported by the weekly American Petroleum Institute (API) and Energy Information Administration (EIA) caused a fall to $55.75.
This decline continued down to $55.65 due to a strong U.S. dollar and doubts over the rise of U.S. shale production after oil inventory rises detailed in weekly reports. However, despite the rise in the U.S. Baker Hughes oil rig count, a small decline in the U.S. dollar index resulted in a price recovery in which Brent oil settled at $55.81 at the end of the week.
In brief, the rising U.S. dollar index with hawkish remarks from Fed members including Fed Chair Janet Yellen and Fed vice chair Stanley Fischer along with doubts over the rise in U.S. oil production, curbed the recuperation of oil prices last week.
Following the hawkish sentiments, other Fed members also spoke emphasizing the strength of the U.S. economy and declared that additional interest rate hikes during 2017 would be prudent. On the other hand, U.S. President Donald Trump on every occasion explained that he did not want an overvalued U.S. dollar to better compete in trade with other countries.
Furthermore, Trump supports tax cuts in the U.S. to help the economy. Given that his aim is to have a weaker U.S. dollar as a fiscal policy, it is likely that he will take reflationist steps during his term, which could push oil prices up.
The continuous rise of the U.S. Baker Hughes rig count over the past nine months has slowed down according to the rig count over the past two weeks. 聽The EIA short-term Energy Outlook released in Feb. 7 said that U.S. oil production, which averaged an estimated 8.9 million b/d in 2016, is now forecast to average 9 million b/d in 2017, a 100,000 barrels per day rise. Therefore, on the supply side, oil traders should focus on the compliance of the oil cut agreement with OPEC and non-OPEC countries rather than the rise in U.S. shale production.聽
OPEC has satisfied oil markets with its high compliance ratio, but non-OPEC鈥檚 conformity is yet officially unknown, but markets are eager to hear the results which will be revealed in OPEC鈥檚 Joint Ministerial Committee report in the second half of February.
Brent oil price at $55 per barrel is feasible as a break-even mark in spite of a strong U.S. dollar, so a price range of between $55 and $60 in the short term is viable.
- Opinions expressed in this piece are the author鈥檚 own and do not necessarily reflect Anadolu Agency's editorial policy.