BENGALURU: In an interesting turn of events, oil prices experienced a significant drop of more than a dollar per barrel on Friday. This sudden decline can be attributed to a strengthening dollar and oil traders capitalizing on the recent rally. The crude benchmarks, despite this setback, still managed to record their third consecutive weekly gain.
Brent crude futures settled at US$79.87 per barrel, witnessing a decrease of US$1.49 or 1.8%. Similarly, US West Texas Intermediate crude futures fell by US$1.47 or 1.9%, settling at US$75.42 per barrel. When asked about the situation, John Kilduff, a partner at Again Capital, attributed the market correction to profit-taking and resurfacing demand concerns as the dollar regains strength.
Investors also witnessed the US dollar index making a slight recovery after reaching a 15-month low earlier in the session. The rise in the value of the dollar actually reduces oil demand, resulting in crude becoming more expensive for those holding other currencies.
Despite the temporary setback, Rob Haworth, a senior investment strategist at US Bank Wealth Management, sees potential for the rally to resume in the upcoming week. He believes that easing inflation, plans to refill the US strategic reserve, supply cuts, and ongoing disruptions in the market could all contribute to supporting the oil market. Although oil prices are currently slightly overbought and have reached their highest levels since May, the overall trend seems to indicate a gradual increase.
Interestingly, oil prices managed to gain almost 2% on a weekly basis due to supply disruptions in Libya and Nigeria. The concerns surrounding these disruptions have led to increased worries about the market tightening in the coming months. A local tribe’s protest in Libya resulted in the shutdown of several oilfields, halting an estimated 370,000 barrels per day. In addition, Shell suspended loadings of Nigeria’s Forcados crude oil due to a potential leak at a terminal, resulting in a loss of 225,000 barrels per day.
Complementing these supply disruptions, Russian oil exports have also seen a significant decrease. Commerzbank analysts point out that if this trend continues into next week, it could further drive up prices. Russian oil exports are expected to be reduced by 500,000 barrels per day in August.
Overall, while the oil market experienced a temporary setback, the stage seems set for a potential rebound in the coming week. Factors such as reduced supply, ongoing disruptions, and the plan to refill the US strategic reserve are likely to support the market. As the dynamics and uncertainties continue, the oil industry remains an intriguing sector to watch closely. [431 words]
Credit: The Star : Business Feed
