Oil Buoyed by Weaker Dollar and Stronger Equities

Russian oil

Crude palm oil prices fell 0.44 per cent to Rs 578.30 per 10 kgs in futures trade today as speculators booked profits at prevailing price level amid fall in demand at the spot market. Oil headed toward its highest close in two weeks on investor optimism after Opec's secretary general said the market's journey toward equilibrium is gaining traction.

"Opec and Russian Federation continue to support the production cuts that are due to expire at the end of this year, and they assure markets that there will be an orderly ramp up of production once the cuts expire", said William O'Loughlin, investment analyst at Australia's Rivkin Securities. Brent crude was up 15 cents, or 0.2 per cent, at $64.99 after rising more than 3 per cent last week.

Saudi Arabia-the de facto head of OPEC-and Russian Federation indicated last week a willingness to stick an agreement that has helped hold back global production by almost 2%, while boosting crude prices by more than 50% in the second half of 2017.

Ironically, this is all happening at the same time that the Nigerian government has pledged to participate in a global pact lead by Saudi Arabia and Russian Federation to restrict oil supply.

Last week, the number of the operating oil extraction platforms in the United States increased for the fourth week in a row to 798, indicating that U.S. production, which has already reached a record 10.27 million barrels per day, may increase further.

"The drawdown in inventory has been supportive for WTI, with the Brent-WTI spread narrowing from nearly US$7 per barrel at the end of December to around US$3.20 a barrel now".

The divergence in prices kept USA crude's discount to Brent WTCLc1-LCOc1 near a six-month low after widening to more than $7 in December. The American crude is strengthening versus the Middle East marker as a combination of new pipeline options, a rail vehicle crunch, demand from Gulf Coast refineries and a thirst for USA supply from overseas means less is being hoarded. Slower domestic demand, along with growth in natural gas, oil, and oil product production will drive the transformation, the EIA said.

A stronger dollar on Tuesday saw most commodity prices - which are denominated in the U.S. currency - fall.

Gold last Wednesday enjoyed its best trading day since June 24, 2016 when financial markets were shocked by Britain voting to leave the European Union.

"We should expect the WTI whipsaw to continue as debate rages between USA shale and OPEC, but we're starting to carve out near-term ranges, as longer-term oil bulls remain in dip buying mode, with shale oil hedger looking to sell upticks", he said.



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