- The Writer holds an MSc from Creighton University and is a Ph.D. candidate in the Turkish National Police Academy
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Brent oil finally reached the target that the Saudi’s set last November prior to talks on the oil cut agreement between OPEC and non-OPEC participating countries when prices saw over $60 per barrel last week. They now intend to extend the existing oil cut agreement beyond March 2018 at the upcoming OPEC annual meeting on Nov. 30. Both OPEC and non-OPEC participants have achieved almost a hundred percent conformity level in the agreement, reflecting the high solidarity and determination to drain the global oil glut to a five-year average of oil stocks in industrialized countries. Over the past ten months, they drained more than half of the 340 million barrel surplus from the five-year average. However, it appears that at least nine months will be needed to bring stocks down to the targeted five-year average. As a result, they are more likely to extend the agreement beyond March 2018 to achieve this. However, such a decline in global oil stocks and the subsequent prices increases seen so far this year, supported by the oil and gas sector, have been hit by storms in the U.S. and by oil production disruptions due to political disputes between the Kurdish Regional Government in Northern Iraq and the central Iraqi government. A rise in oil demand supported by a weaker U.S. dollar since January 2017 also helped drain oil stocks.
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 slight decline to $57.37 due to a rise in the U.S. dollar index and when players took a selling position in the market.ÌýÌý
On Tuesday, the price continued its ascent to $58.33 with Saudi Energy Minister Khalid al-Falih’s supportive statements on the oil cut extension, and with concerns over the easing off of Iraq’s oil exports.
The price decelerated due to the recuperation of U.S. crude oil production by more than a million barrels to over 9.5 million barrels per day for the week ending Oct. 20, as reported by the EIA and the weekly rise of 0.85 million barrels in the U.S.� commercial oil inventories, as reported by the Energy Information Administration’s (EIA) in its weekly report. It nonetheless increased slightly to $58.44 through a decline in the U.S. dollar index on Wednesday.
On Thursday, it surged to $59.30 helped by the statement of Saudi Crown Prince Muhammed bin Selman who said that Saudi Arabia would support the oil cut extension until the end of 2018. Brent settled at $60.44 at the end of the week.
On the supply side, with OPEC and non-OPEC’s ongoing efforts to end the global oil surplus, the extension of the oil cut deal beyond March 2018 looks possible. On the other hand, concern over Iraq’s oil supply is a positive factor in boosting prices. The Iraqi central government is trying to compensate for the lack of oil supplies from Northern Iraq through production rises in other parts of the country. The recent damage to the oil and gas sector from storms in the U.S. has almost ended and now U.S. oil production can be restored.
On the financial side, the U.S. dollar index has been on the rise through the Europe Central Bank’s (ECB) decision to prolong its bond-buying program to September 2018, even though they agreed to reduce it to �30 billion in January 2018 from the current �60 billion. The U.S. Fed’s Federal Open Market Committee meeting and the announcement of U.S. President Donald Trump’s nomination of a new Fed President this week will determine the future route the U.S. dollar index will take. A rise in the U.S. dollar index after these events this week would be another obstacle to the recent price increases.
Brent oil could reach over $61, supported by falls in the U.S. dollar index, if further depletion of U.S. oil inventories arises, or if U.S. crude oil production wanes. If not, declines towards $59 could be seen.Ìý
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- Opinions expressed in this piece are the author’s own and do not necessarily reflect Anadolu Agency's editorial policy.
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