Oil prices up amid weaker dollar, optimism over reduction deal
An OPEC production cut raised hope for higher prices in 2017. But, still there is a dark cloud hanging over those expectations due to rising oil output in the United States.
Oil climbed on January 24 as a weaker USD and production cuts announced by OPEC and other producers buoyed the market, but global storage inventories must be substantially reduced to keep prices higher.
Brent crude futures were trading at $55.53 a barrel increasing by 30 cents, while U.S. West Texas Intermediate (WTI) crude stood at $53.02 a barrel adding 27 cents, Reuters reported. The price of a barrel of Azeri Light crude oil increased $0.03 to stand at $56.10.
The U.S. dollar fell to a more than two-month low against a basket of currencies pressured by concerns and uncertainty over the impact of President Donald Trump's economic policies. A weaker dollar made greenback-denominated commodities cheaper for importers holding other currencies, triggering a rise in oil prices.
The prices also gained traction from the first meeting of the Ministerial Committee on the implementation of the reduction agreement as participants noted the implementation of pledges by all countries, with some even ahead of schedule.
The Cartel in tandem with several independent producers agreed in late 2016 to cut supply in the first such deal in 15 years to remove a dominating oil glut. The ministers said some 1.5 million bpd (over 80 percent of the pledged volume) out of the agreed 1.8 million bpd had been removed from the market, while most of the 24 countries made positive statements that they are cutting in accordance with the plan.
Director of Downstream Consulting at IHS Markit (UK), Spencer Welch told Trend that the average oil prices are expected to be $14 per barrel higher in 2017 than in 2016, with 2017 averaging around $58 per barrel, as compared to $44 in 2016.
The expert noted that operating environment has definitely improved in 2017 with planned supply cuts being implemented, global oil stocks falling and world demand steadily increasing.
Meanwhile, Bernstein Energy said global oil inventories declined by 24 million barrels to 5.7 billion barrels in the fourth quarter of last year from the previous quarter. Still, this amounts to about 60 days of world oil consumption.
Data from Baker Hughes showed the number of working oil rigs in the U.S. climbed by 29 to a total of 551 pointing to a potential rise in oil production. The country's oil production has risen by more than 6 percent since mid-2016, though it remains 7 percent below the 2015 peak.