Oil prices were down slightly in trading on Wednesday as the US dollar recovered from last week’s three-year lows and expectations that US crude stocks rose again last week.  Repsol photo.

US dollar a “trading reality” influencing oil prices

Oil prices were down slightly in trading on Wednesday as the US dollar recovered value lost from last week’s three-year lows and analysts voiced concerns about rising US production.

By 1:34 p.m. EST, Brent crude was down 9 cents to $64.96/barrel and US WTI fell 21 cents to $61.58/barrel.  The Canadian Crude Index dropped 36 cents to $35.02.

After nearing its lowest level in six months on Tuesday, the premium of Brent over WTI widened to almost $3.60/barrel.  WTI had been buoyed earlier in the week due to concerns over lower Canadian crude imports due to reduced capacity on the Keystone pipeline.

“A sense of harmony has returned this morning with both crude benchmarks ploughing a southerly furrow as the dollar gains further ground,” PVM Oil Associates analyst Stephen Brennock told Reuters.

The rising US dollar was underpinned by the rise in short-term US government bond yields, which reached their highest in over nine years, ahead of the release of the minutes of the Federal Reserve’s recent policy-setting meeting.  The minutes could signal the pace of any interest rate increases.

“We all hate to talk about the dollar rather than about oil, but the dollar is currently a trading reality and we can’t ignore its price influence,” Petromatrix strategist Olivier Jakob told Reuters.

“In that regard…today we will have to watch the release of the FOMC minutes for the influence they can have on the dollar.”

Oil prices were also affected by analysts’ expectations that US crude stocks will rise by 1.3 million barrels in the week ending Feb. 16, according to a poll by Reuters.

Helping prop up oil prices was a report by Reuters released on Tuesday which said OPEC along with other pact participants, including Russia, will discuss extending the agreement for many years to come when they meet in June.

The pact would be extended to avoid major market shocks, according to Suhail Al Mazroui, the United Arab Emirates’ Energy Minister.

On Tuesday, OPEC data showed the cartel’s supply cut agreement has helped cut crude inventories in OECD countries from 340 million barrels over their five-year average in January 2017 to 74 million barrels over the five-year average in January 2018.

According to Reuters, futures prices have also taken a hit from physical markets, which are showing signs of seasonal weakness.  At this time of year, most of the refineries in the world either partially or wholly close to conduct maintenance, resulting in a reduction in crude intake.

Prices for physical barrels have dropped in North America and Europe and cheaper sour, more sulphurous grades have been impacted the most.

North Sea barrels prices on Tuesday recovered after hitting their lowest marks since mid-2017.  Light, sweet West African grades have shown to be the most resilient in the Atlantic basin due to high demand from China.  Mediterranean crudes, Russian Urals have declined since the beginning of the year.