Oil rally fizzles out as OPEC efforts seen sterile

25 October, 2016

The Oil prices retreated on Monday during the Asian trading session as the investors started opting to cut bullish wagers because the doubts gathered about the inability to produce significant changes in the output freeze agreement unless the demand does not increase. The WTI grade fell by 1.30% to $50.20 per barrel while the ICE traded Brent oil sank by 0.91% to $ 51.32 per barrel.

Last Friday the oil futures recovered after falling earlier in the day despite the dollar’s growth gaining traction after the Russian energy Minister Novak said that the oil freeze accord between Oil producers is essential for a market to rebalance. Russia demonstrated concern when joining OPEC efforts to limit the output according to Novak, stating that the country will look for common ground with Saudi Arabia at a meeting of the Gulf oil ministers in the weekend.

Organization of Petroleum Exporting Countries said that late last month the members reached a preliminary agreement to cut the output to 32,5-33,0 million barrels per day. It is expected that OPEC will agree on the details of this agreement at the summit officially on November 30th but the plan could fail without Russian participation.

Some analysts believe that the pullback of oil prices indicate a future rise, which makes the market unstable as the world production still exceeds consumption. This week the focus of oil traders will be on the data of the US inventories, which will be released on Tuesday and Wednesday, to give clues about possible changes in the supply and demand.

The Baker Hughes report deemed on Friday raised concerns within the US shale oil producers as production may be returning to the growth track. Most visibly seen in the rig count expanding from 539 to 553.

The US Dollar index

The US currency trades nearly flat after rising to 98.50 on Friday led by the ECB reluctance to force reduction of bond purchases. This, in turn, put pressure on the Euro. Draghi gave no clues on whether March will be the final month for the current volume of stimulus or not. This means there have been no positive changes in the EU economy.

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