Oil prices peak to 3-year high as US dollar weakens, inventory declines

ERBIL, Kurdistan Region – Crude oil prices peaked to a three-year high on Thursday due to a weakening United States dollar, lower US inventories and continued cuts by the Organization of the Petroleum Exporting Countries (OPEC) and Russia.

Global benchmark Brent Crude has increased from $67.18 per barrel on January 2 up to $71.05 as of Thursday with US benchmark West Texas Intermediate (WTI) increasing from $60.63 per barrel up to $66.35 within the same time frame, the highest for each company since December 2014 as reported by Reuters.

Both companies have witnessed a nearly 60 percent increase since mid-2017.

The weakening US dollar is also contributing to higher crude oil prices. The dollar hit its lowest level in foreign exchange markets since 2014 compared to other leading currencies, with a loss of nearly 2 percent.

Chief market strategist at FXTM, an online brokerage firm, Hussein Sayed suggested that improvements in the European economy, particularly France and Germany, are causing some investors to choose the euro over the dollar, as reported by CNN Money earlier this month. Analysts also suggested that “political dysfunction” in the US could be adding to the weakening dollar.

The Energy Information Administration (EIA) reported on Wednesday that US crude inventories fell to 411.58 million barrels, declining for 10 straight weeks in a row.

Chairman of the consultancy firm FACTS Global Energy, Fereidun Fesheraki, told Reuters that there are expectations that crude oil prices could still rise further.

“The market is so tight... The problem with this environment is that if you have something in say, Libya, and production goes down by 500,000 barrels (per day)... it (Brent) can easily go to $75 by May,” he said.

An attack on an oil pipeline in Libya at the end of December caused a supply disruption of approximately 100,000 barrels per day (bpd) which drove prices up in early January contributing to 2018 being the strongest opening year for crude oil prices since 2014.

OPEC and Russia-led production cuts are also tightening the market to raise oil prices which began in January of 2017 and are scheduled to continue through the end of this year.

The only concern for traders that might hamper the outlook for oil prices in 2018 is the rise of US oil production, which is reaching a production rate of nearly 10 million bpd, on par with top OPEC exporter Saudi Arabia.

“We think US tight oil production growth warrants close monitoring as it could spoil OPEC’s market-balancing efforts, pushing the market into surplus in 2018,” Barclays bank reported in early January.