Oil prices under pressure from strengthening dollar
London (Nov 27) Oil prices were trending down Friday, pressured by a stronger dollar and the global oversupply of crude still clouding the outlook for the industry.
Brent crude LCOF6, -0.15% the global oil benchmark, was down 1.1% at $44.94 a barrel on London’s ICE Futures exchange. On the New York Mercantile Exchange, West Texas Intermediate futures CLF6, -1.79% fell 2% to $42.17 a barrel. Trading volume was thin because of a U.S. public holiday.
The dollar strengthened on Friday and pressured commodities such as oil, which are priced in the U.S. currency. The Wall Street Journal Dollar Index BUXX, +0.20% , which tracks the dollar against a basket of other currencies, rose 0.2%.
Although geopolitical tensions, after Turkey shot down a Russian jet along the Syrian border, pushed prices up this week, there is little indication so far the turmoil in the Middle East is affecting oil supply.
“The potential increase in geopolitical risk premium has faded a bit as the dispute between Russia and Turkey has not yet escalated or spread to the surrounding countries, affecting oil output,” said Michael Poulsen, oil analyst at Global Risk Management.
Russia ordered tougher checks on Turkish food imports, taking aim at the country’s economy two days after Turkey shot down a Russian warplane on its border with Syria.
Oil prices headed south last year after the Organization of the Petroleum Exporting Countries embarked on a strategy of protecting its market share by pumping more crude despite the falling prices. While the booming U.S. output has tailed off this year, oil stockpiles remain near-record highs.
“Inventory overhangs dominate the oil markets and will likely suppress oil prices in the near-term as we approach [December] OPEC meeting in Vienna,” said Jason Gammel, analyst at Jefferies. “Crude and product inventories are building in the U.S. with the market expected to remain oversupplied through the first half of 2016.”
Earlier this week, the U.S. Energy Department said crude stockpiles ticked up by 1 million barrels last week, bringing the total tally to 488.2 million barrels, around a level not seen in the last eight decades. U.S. oil output has also held stable, around 9.2 million barrels a day, but down from a peak of 9.6 million barrels a day in April.
“Oil market oversupply will continue through next year, due to resilient U.S. production, even if it is declining, and high OPEC output led by Saudi Arabia and Iraq,” said Michael Wittner, chief oil analyst at Société Générale.
Wittner said he doesn’t believe there will be “any change in Saudi or OPEC policy,” when the 12-nation oil cartel meets in December.
Nymex reformulated gasoline blendstock RBZ5, +0.64% — the benchmark gasoline contract — rose 2.3% to $1.32 a gallon.
Source: MarketWatch
