Crude Oil Trades Higher on Limited US Supply Growth
By Adedapo Adesanya
Crude oil prices traded higher on Friday, recouping much of the losses from a day earlier blamed on the strength in the Dollar as the market expects slower growth in output from the United States.
The international benchmark, Brent crude futures, gained 43 cents or 0.59 per cent to trade at $73.51 per barrel, while the US benchmark, West Texas Intermediate (WTI) crude futures, went up by 0.85 per cent or 60 cents to sell at $71.64 per barrel.
The bullish trend pushed crude prices to a fourth straight week of gains.
This happened as the Organisation of the Petroleum Exporting Countries (OPEC) expects limited oil output growth from the largest producer in the world, the US, this year despite rising prices.
OPEC’s Economic Commission Board was told this week by industry experts to brace for the US output to see a limited rise of 200,000 barrels per day this year.
While there was general agreement on limited US supply growth this year, 2022 forecasts showed that growth could range from between 500,000 and 1.3 million barrels per day.
This was good for the market that had been trying to come to terms with the fact that the US Federal Reserve might have to raise interest rates in the next two years.
In addition, on the political scene, Iran held a presidential election on Friday and the likelihood that the nation may see a hardline candidate become the winner reduces the odds that Iranian crude oil will come on the market anytime soon.
Indirect negotiations between the US and Iran to revive the 2015 nuclear deal are ongoing and some analysts have said that a victory by a front-running hard-liner could slow negotiations.
Energy traders will also keep an eye on the Gulf of Mexico to see if a storm system in the region forms into a tropical storm Claudette and causes any problems. Natural occurrences often lead to higher prices.
On Wednesday, WTI crude saw the highest front-month contract settlement since October 2018, while Brent ended that session at the highest since April 2019, but prices for both contracts fell sharply Thursday.
A strong US Dollar also pressured the crude oil. The greenback index, a measure of the currency against a basket of six major rivals, was up 0.4 per cent on Friday, translating to a 1.8 per cent weekly gain, which would be its strongest since September.
A stronger dollar weighs on commodities priced in the currency, making them more expensive to users of other currencies.
There is also the possibility of higher US oil production as the number of active oil drilling rigs rose for a second consecutive week. The oil rig count, an early indicator of future output, rose eight this week to 373, the highest since April last year.