- The Writer holdsÌýan MSc from Creighton University and is a PHD candidate in the Turkish National Police Academy
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Oil markets have heated up with the return of all market players after the New Year, and therefore volatility will be higher through the rising volumes in the markets in the upcoming days. Additionally, with Donald Trump’s inauguration as U.S. president, one of the most significant event for all markets, including oil markets, will be held on Friday this week while U.K. Prime Minister will speak about the Brexit negotiations on Tuesday with the plan to trigger Article 50 at the end of March. The extent to which U.S. oil production will react to the recuperation of oil prices will also impact the market.
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 speculations during the weekÌý
Brent oil started the week with a drop to $54.94. due to anticipation that U.S. oil production will increase because of the sustained rise in the Baker Hughes rig count and doubts over whether OPEC and non-OPEC will implement the oil cut agreement arising from speculation that some OPEC members, like Iraq and Iran, would not comply.
In addition, the Brexit process which is proving to be harder than expected, had some impact on such declines which continued down to $53.64. Of note is that the majority of declines were realized with the opening of U.S. financial markets reflecting their influence on oil prices.
Following such declines, weekly API and EIA, which reported an unexpected increase in U.S. oil inventories, did not allow oil prices to regain losses, and oil prices surged to $55.10 through the decrease in the U.S. dollar index with Trump’s press conference on Wednesday, January 11. This U.S. dollar weakness continued and supported prices in reaching $56.01, but the oil price settled at $55.45 at the end of the week with a slight fall despite the decrease in the U.S. Baker Hughes rig count.
Oil prices fell by 10 percent within three days due to global growth worries after the Brexit referendum resulted in a vote to leave the EU. Therefore, oil markets will keep a close eye on Brexit negotiations planned to start at the end of March 2017. Furthermore, U.K. Prime Minister Theresa May stated in her first interview in 2017 on Sky News that the U.K is firm on leaving the EU, a stance that she echoed in her interview on Tuesday, Jan. 18. Oil markets are sensitive to speculations on how the global economy, through oil demand, will be affected.Ìý ÌýÌýÌýÌýÌýÌýÌýÌýÌýÌý
The oil market appears optimistic for Trump’s inauguration on Friday. Markets anticipate that the new president will create a long-awaited rise in global oil demand backed by U.S. economic growth. The International Monetary Fund (IMF) also supports such hopes in the World Economic Outlook Update published on Monday Jan. 16, with a revised U.S. economic growth projection for 2017 to 2.3 percent from 2.2 percent while it estimated a 2.5 percent economic growth for 2018. Whether Trump meets these expectations for a rise in oil demand remains to be seen.
Furthermore, markets are also awaiting how Trump will react to the lengthy currency wars created by Japan, the EU and China against the U.S. dollar index. The U.S. economy has a foreign trade deficit balance, which is hard to overcome with a strong dollar. Therefore, Trump could take action to keep a weak dollar against other currencies to boost oil prices.ÌýÌýÌýÌý
According to the EIA, U.S. oil production has not been able to reach previous production levels throughout 2016 despite the recovery of oil prices and the substantial rise in the U.S. Baker Hughes rig count over the past six months. On the other hand, OPEC and non-OPEC members have started to announce and explain the extent of their oil production in line with the oil cut agreement � all good signs for the rebalancing of oil supply and demand.
The price balance between $53 and $60 within the past two months can lead to a new balance range of over $60 if Trump’s inauguration causes a weak U.S. dollar index and if the results of the meeting of OPEC’s Ministerial Monitoring Committee on Jan. 22 satisfies the oil markets on oil cuts.
- Opinions expressed in this piece are the author’s own and do not necessarily reflect Anadolu Agency's editorial policy.Ìý
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