Oil prices up amid weakening greenback

By Azernews

By Nigar Abbasova

Optimism over successful implementation of an output reduction deal is still a major catalyst for the world oil market, which strives for rebalancing.

Despite some suggestions that the oil market is close to reaching a long-anticipated balance, prices have barely stood above $55 since the initial surge that was triggered by the deal signed in November 2016.

Significant gains are still capped by plentiful supplies and inventories, despite an effort by OPEC and other producers to prop up the market.

Oil prices edged up on January 26 driven up by a weakening dollar with Brent crude futures trading at $55.59 per barrel, 51 cents or 0.93 percent up from the previous close and U.S. West Texas Intermediate (WTI) standing at $53.22 a barrel, up 47 cents, or 0.89 percent, Reuters reported.

Since oil is traded in the dollar, downgrade changes in the USD rate affect the prices, making fuel purchases less costly for countries using other currencies, potentially spurring demand.

Compliance of oil producers to their pledges and cuts from OPEC members totaling 1.5 million bpd, jointly with non-cartel cuts of nearly 600,000 bpd have already pushed prices above the threshold of $50, strengthening hopes of rebalancing.

The World Bank’s January Commodity Markets Outlook also reflected compliance to the recent agreement projecting prices to average $55 per barrel in 2017, unchanged from the October forecast, and an increase of 29 percent from the 2016 average oil price.

Oil prices are projected to increase up to $60 per barrel in 2018 assuming a balanced market and no additional OPEC supply restraint, while world oil demand for 2017 is projected to increase by 1.3 mbd (1.3 percent) to an average of 97.8 mbd, according to the Bank.

However, the bank’s analysts say responsiveness of U.S. oil production to higher prices will continue to be a key determinant of the oil market’s rebalancing.

Rising U.S. inventories and output are countering efforts of major producers aimed to increase the prices, while the idea that U.S. shale oil industry is back in growth mode fuels concerns and doubts that the market is able to succeed in an effort to end a global glut.

Oil price gains are vulnerable to data from the U.S. Energy Information Administration (EIA) which showed a 2.84 million barrels increase in commercial crude inventories to 488.3 million barrels, which add to a 6.3 percent rise in U.S. oil production since the middle of last year to 8.96 million barrels per day (bpd).