Oil prices fell after Thursday’s trading session, weighed down by the dollar, which dominated a report that crude inventories in the United States were down.
The WTI reached the price of $61.15 a barrel, falling by 53 cents, or 0.9%, from the previous session. Brent crude futures dropped by 42 cents, or 0.6%, from the previous session, to reach $65 a barrel. The dollar rose to a one-week high against a basket of major currencies on Wednesday, after the minutes of a FED meeting in January showed that policymakers were increasingly confident that interest rates should continue to rise.
Because of the oil trading in dollars, the rise in the US currency increases the cost of fuel imports to countries that use other currencies, which may limit demand. The strength of the dollar was overshadowed by a report by the US Petroleum Institute on Wednesday, which showed an unexpected drop in US crude inventories by 907,000 barrels, to 420.3 million barrels in the week ending Feb. 16.
Despite today’s declines, analysts said that oil markets were generally well supported, as demand growth coincided with output cuts led by the Organization of the Petroleum Exporting Countries and Russia. OPEC production cuts have led to market stability, and therefore, compliance with the agreement is relatively good. According to international reports and OPEC data, surplus supply is dropping at a faster pace than expected, which means that the market is close to reaching a desired balance, indicating that prices have risen above $70 a barrel, but they have not held up much because of the US production boom. However, the prices should not fall drastically again, because of the efforts led by successful producers to restrict the oil supply.
The price recovery and the decline in surplus stocks provide a good feeling of confidence and optimism in the markets, and producers will continue to cooperate, perhaps even at a stronger pace. The proposed placement of the privatization of 5% of Saudi Aramco will come in a very positive atmosphere in the market. The Energy Information Administration is due to release its weekly inventory report on Thursday, late on Monday due to last Monday’s US holiday. A Bloomberg survey forecast US stockpiles to rise by 3 million barrels last week, with the efforts by OPEC and its allies to cut output to reduce stockpiles.
The surplus of oil inventories has fallen significantly over the past year, to 74 million barrels over the five-year average in January, partly because of OPEC’s cut production agreement. OPEC is cutting output by 1.2 million bpd under an agreement with Russia and other independent producers. The deal, which began a year ago and will last until the end of 2018, is currently ongoing. OPEC aims to cut stocks to 5-year average, but Saudi Arabia has hinted that the target could be adjusted.
Be the first to comment