Oil Price Surge Above $70 As Dollar Continues To Fall

Ann Santiago
January 29, 2018

The oil price has risen above $71 earlier Thursday, for the first time since 2014, as USA crude inventories fell for a tenth straight week. The weaker dollar has made oil more attractive to investors.

According to Iranian Petroleum Ministry, Iran's crude oil price for each barrel fell by 60 cents in the week leading to January 19 and stopped at US$68.81, which shows a 45-cent decrease compared to last week.

Geoffrey Craig, the oil futures editor at Platts, said US oil movements were contributing to the drain in part because of the spread, or difference, between Brent, the global benchmark, and West Texas Intermediate, the USA benchmark for the price of oil.

A fresh addition to that list is escalating concern over U.S. President Donald Trump's threat to withdraw from the landmark 2015 multilateral nuclear deal with Iran, which enabled around 1 million b/d of the OPEC member's crude production and exports that had been choked off by crippling Western sanctions, to return to the market.

As the oil output cuts, coupled with robust global demand, tighten the market, Brent futures have soared to a three-year high near $70 a barrel.

Gasoline inventories rose by 3.1 million barrels and stocks of distillate fuels, which include diesel, were up by 639,000 barrels.

That was below analyst estimates for a drop of 1.6 million barrels in a Reuters poll, but the report eased traders' worries after industry data released on Tuesday suggested that stocks rose by 4.8 million barrels.

In September 2018, oil production in the US will be 10.08 million barrels per day and will grow to 10.34 million barrels of oil per day by the end of 2018, in accordance with the forecasts.

The Organization of the Petroleum Exporting Countries (OPEC) and other producers outside the oil cartel, including Russian Federation, had agreed late a year ago to extend an accord to hold back crude output by 1.8m barrels a day till the end of 2018.

US output has grown by more than 17 per cent since mid-2016, and is now on par with that of top exporter Saudi Arabia. Re-imposition of USA financial sanctions against Tehran could disrupt its supplies again, sending crude prices spiraling beyond the now forecast range. It will essentially alleviate the upside pressure.

"The depreciation of the USA dollar is also allowing oil prices to make further gains", said Carsten Fritsch, a bank analyst.

Last week's steep plunge in the dollar was a gift to crude oil bulls, but it's not likely to last so be prepared to protect the downside.

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