Oil Prices Remain Rangebound Despite U.S. Dollar’s Rally
FxPro Financial Services Ltd | Feb 27, 2023 08:15AM ET
Oil remains stubbornly stuck in a sideways range despite the dollar's rally and other risk assets' retreat over the past week and a half, with weekly production and commercial inventory data painting a relatively contradictory picture.
US commercial crude inventories continue to rise steadily, increasing by 7.6m barrels to 479m barrels last week. Commercial inventories have only been higher during the glut of 2016-2017 and the first, most severe cutbacks of 2020. We also pay attention to the accumulation rate, as stocks are now 15.1% higher than one year ago.
The US government has postponed its start to replenish stocks, even though it has hardly sold any oil since the beginning of the year. Price stability seems to force the US to postpone its plans to buy oil in reserve, not to push up prices and inflation further.
The sharp rise in inventories has been seen while production has stabilized at 12.3m BPD for the past three weeks. Compared to how America ramped up output from mid-2011 to mid-2015 and from October 2016 to March 2020, we now see a creeping increase. Judging by this dynamic, the US is in no hurry to regain the oil market share that Russia and OPEC are losing.
An even more cautious view on the outlook for oil demand suggests a trend in the number of rigs in operation. According to Friday's Baker Hughes report, the number of oil rigs fell to 600 last week, down slightly from a peak of 627 in early December last year.
The conventional wisdom is that the trend in drilling activity is 6-9 months ahead of the direction in production. Still, a gradual increase in production efficiency can explain the slight current reversal. Only catastrophic collapses in this indicator, such as in 2014-15 and 2020, are worth paying attention to. The long-term price trend, in turn, determines the dynamics of drilling activity.
Get The News You Want
Over the past three months, WTI crude oil has been bought on declines towards $73, driven by both OPEC+ production cuts and signs of a stronger economy. However, suppose the Fed does indeed cool the economy to the point of lower demand. In that case, local support is unlikely to withstand selling pressure, opening the way for prices to fall until a change in Fed policy is announced.
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.