Featured # Markets | 3 years ago

Weakening Dollar Drives Oil Prices HIgher

Oil futures rose on Wednesday to nearly $40 a barrel as the United States dollar continued to fall. The weakening dollar increased investor’s appetites for more risky assets, which led to the higher demand for oil. In addition, oil prices were affected positively by comments made by the International Energy Agency, as the agency stated that the presumption that Iran would flood the supply of oil was misguided.

United States Federal Reserve Chair Janet Yellen’s dovish comments pertaining to interest rate hikes spurred the dollar to fall again on Wednesday, as the currency fell to an eight-day low on Tuesday. Investor’s holding other currencies enjoy the weakened dollar, as commodities backed by the dollar become less expensive in those alternative currencies.

Olivier Jakob, employee at Petromatrix Consultancy, shared his thoughts on why Janet Yellen took the stance she did with interest rate increases, “One of the main reasons for Yellen’s dovish stance is the low oil price and she made a direct reference to it… For Yellen, low oil prices are not only contributing to low inflation expectations but they are a threat to global economic growth due to the financial stress they are imposing on oil-producing economies.”

The price of oil decreased at a roughly 3% clip on Tuesday on the heels of news coming out of Kuwait and Saudi Arabia. Despite the fact that major oil producing nations are planned to meet in Qatar on April 17th to discuss a production freeze, both Kuwait and Saudi Arabia decided to resume producing oil at a jointly operated location that produces 300,000 barrels per day.

Analysts from Commerzbank released a note regarding Saudi Arabia’s and Kuwait’s decision to increase their oil output before the production meeting, “The fact that the announcement comes so shortly before the meeting in Doha is a disastrous sign. After all, it gives the impression that the lip service paid to freezing oil production is nothing but hot air.”

There is currently a glut of oil globally and the International Energy Agency projects the international stockpile to continue to swell throughout the year. However, on Wednesday the agency released a statement detailing how Iran was not producing as many barrels of oil as projected, despite international sanctions being lifted off of Iran in January. The executive director of the IEA, Fatih Birol, was quoted as saying, “It was misleading to believe that there would be a huge amount of new Iranian crude and natural gas production entering the market in the short term.”

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