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Oil Back At $50 As The US Dollar Weakens

By:
Barry Norman
Updated: Jun 23, 2016, 08:12 UTC

Oil prices reversed losses in Asia aided by the weaker US dollar with WTI gaining 31 cents to trade at 49.44 while Brent oil added 27 cents to 50.15. The

Oil Back At $50 As The US Dollar Weakens

Oil prices reversed losses in Asia aided by the weaker US dollar with WTI gaining 31 cents to trade at 49.44 while Brent oil added 27 cents to 50.15. The US dollar continued to decline after two days of testimony from Janet Yellen as well as reduced global stress as the UK goes to the polls today.  The weekly EIA inventory was mixed with some products falling and others gaining.

The Energy Information Administration said in its weekly report on Wednesday that U.S. crude oil inventories fell 0.9 million barrels to 530.6 million in the week ending June 17, the fifth weekly draw in a row. But the latest number was still smaller than market consensus of a 1.7 million-barrel decline.

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Meanwhile, investors were watching closely the upcoming Britain’s referendum due to start on Thursday. In the previous sessions, oil prices rose as investors’ appetite for riskier assets like oil increased after concerns about Britain’s possible exit from the European Union diminished.

The US EIA measures crude oil storage capacity twice each year. From September 2015 to March 2016, the US added 34 million barrels (6 percent) of working crude oil storage capacity, the largest expansion of commercial crude oil storage capacity since EIA began tracking such data in 2011, the report noted.
The expansion of crude oil storage capacity helped to accommodate the growth in US crude oil inventories, which surpassed 500 million barrels at the end of January 2016. Further, the EIA reported that US crude oil inventories increased in 24 of the 30 weeks from September to March, reaching 532 million barrels for the week ending June 10. These commercial volumes exclude the 695 million barrels in the US Strategic Petroleum Reserve.

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“Although gasoline demand is still strong relative to year-ago levels, a build to both gasoline and distillate inventories does not bode well for product prices either. With this report, we should expect WTI to move back below $49 this week.”

Investors also braced for more market swings as the dollar gyrates on speculation over Britain’s referendum on the EU today. The greenback determines demand for dollar-denominated oil among holders of other currencies when other fundamental factors are less compelling.

Apart from Brexit, investors will also be monitoring whether U.S. rig count has risen for the fourth straight week. Data is due on Friday. A rise in the number active rigs could indicate potential growth in U.S. shale production in the coming months.

There are also concerns that oil above $50 may lead more producers to renew pumping, adding on to an already saturated market.

crude oil

Oil prices have rebounded since hitting lows of below $30 in February, but current levels are still a long way off the 2014 highs of more than $100.

OPEC’s 2015 oil export revenues slumped 46 percent to a 10-year low, the group said in a report published on Wednesday, underlining the impact on producers’ income from a collapse in prices.

Oil prices at about $50 a barrel are half their level in mid-2014, pressured by oversupply. OPEC’s decision in November 2014 to not cut supply, hoping a drop in prices would curb supply from competitors, deepened the decline.

brent oil

With income falling, the 13 members of the Organization of the Petroleum Exporting Countries (OPEC) posted a combined current account deficit of $99.60 billion in 2015, compared with a surplus of $238.10 billion in 2014.

They earned $518.2 billion from petroleum exports last year, OPEC said in its Annual Statistical Bulletin, the lowest level since 2005.

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