Oil prices pressured by a stronger dollar and another increase in the U.S. oil rig count
International crude oil prices dipped on Friday, October 14th, 2016, over doubts that the Organization of the Petroleum Exporting Countries’ (OPEC) efforts to curb crude production could materially alter the global oil balance and reduce oil inventories that has been ailing the oil industry over the past two years, as reported by Reuters. On September 29th, 2016, OPEC members agreed to reduce oil output to 32.5 million barrels per day (bpd) from the current levels of around 33.24 million bpd in an attempt to keep crude prices above $50 per barrel.
Oil traders are skeptical about OPEC efforts to curb production, which stood at a record 33.6 million bpd in September 2016, and around half a million bpd in excess of consumption. Even if the crude output could be reduced, traders are doubtful that the substantial build-up of nearly 5 billion barrels of oil inventories reported by the U.S. Energy Information Administration (EIA) over the past few months can be minimized.
Market watchers believe that while the initial response to the OPEC agreement was positive, details as to how much each country would have to produce to pull up oil prices to sustainable levels and rebalance the market glut have not been provided. Also, OPEC has not provided clarity on when the agreement would come into effect, how compliance with the agreement would be verified, what would be the new output caps for each country, and how long the deal would remain in effect.
Oil prices also fell as it was pressured by a stronger dollar and another increase in the U.S. oil rig count. The dollar posted its best weekly performance in more than seven months against a basket of major currencies, weighing on prices of dollar-denominated commodities such as crude oil.
International Brent crude oil futures closed at $52.00, down 0.06%, on October 14th, 2016.
OPEC also plans to ask other major producers, including Russia, to join its efforts in cutting output and hopes to provide other major details at its next meeting in Vienna on November 30th, 2016.
U.S. crude closes the week up 1.1%
On the other hand, U.S. crude oil prices edged up on the back of struggling domestic output and tightening fuel supplies, ending the week up 1.1%. After falling below $50 a barrel on Thursday, October 13th, 2016, U.S. West Texas Intermediate (WTI) crude futures inched up to $50.32 on October 14th, 2016. U.S. oil prices rose overnight despite rising stockpiles in the U.S., as fuel supplies in the U.S. fell to the lowest level so far in 2016. The EIA reported a drop of 3.7 million barrels for distillates, which include diesel and heating oil, and a 1.9-million barrel decline for gasoline.
Meanwhile, U.S. crude inventories swelled by 4.9 million barrels in the week to October 7th, 2016, to 474 million barrels, following five consecutive weeks of drawdowns. U.S. crude’s structure gained support from the extended outage of a pipeline capable of delivering 450,000 barrels per day of crude into Cushing, Oklahoma.
Meanwhile, Baker Hughes data showed that U.S. drillers added 4 oil rigs, bringing the total number of oil rigs operating in U.S. fields to 432 as of October 14th, 2016, compared to 595 in the year-ago period. This marks the 15th straight increase in rig counts in the last 16 weeks.
Both Brent and WTI are expected to continue their upward momentum over the next few days, despite the U.S. government reporting the first domestic crude inventory build in six weeks. Market participants expect larger-than-expected drawdowns in diesel, gasoline and other stockpiles reported by the EIA.