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Oil Loses Ground As Stronger U.S. Dollar Puts Pressure On Commodities

By:
Vladimir Zernov
Published: Sep 2, 2020, 15:21 UTC

Oil is under pressure amid a rapid rebound of the American currency.

Crude Oil

Oil Video 02.09.20.

U.S. Crude Inventories Decline By 9.4 Million Barrels

EIA has just published its Weekly Petroleum Status Report which indicated that crude oil inventories declined by 9.4 million barrels. This is not suprising given the negative impact of Hurricane Laura. Yesterday’s API Crude Oil Stock Change report showed an inventory draw of 6.36 million barrels.

Interestingly, crude oil imports decreased by 1 million barrels per day (bpd) compared to the previous week and averaged 4.9 million bpd. The significant decrease of crude oil imports was a significant contributor to the decrease of crude oil inventories.

Meanwhile, gasoline inventories decreased by 4.3 million barrels while distillate fuel inventories decreased by 1.7 million barrels.

U.S. domestic oil production decreased from 10.8 million bpd to 9.7 million bpd which is due to the above-mentioned impact of Hurricane Laura. The market will likely look at this decrease as a one-time development that will not have a material impact on oil prices.

I’d also note that the recent rebound of U.S. dollar may have a bigger impact on short-term price action in the oil market. Strong U.S. dollar puts pressure on dollar-denominated commodities as it makes them more expensive for buyers who have other currencies.

Iraq Wants To Boost Its Oil Production In 2021

According to Iraq’s Oil Minister Ihsan Abdul Jabbar, the country wants to get an exemption from the OPEC+ deal in the first quarter of 2021.

At the same time, Iraq reiterated its desire to comply with the cuts over the next months.

This is a worrisome development for the oil market. Currently, OPEC+ is doing a good job balancing the market. Saudi Arabia forced other producers to strictly comply with the deal and make up for any extra production, and even United Arab Emirates had to order Abu Dhabi National Oil Company (ADNOC) to cut supplies by 30% in October.

In case OPEC+ grants an exemption for Iraq, others may follow with similar requests. The countries’ budgets are stretched at times of the global pandemic, so all oil producers want to sell more oil to get more revenue.

However, such actions may put significant pressure on oil prices and destroy the fragile balance between supply and demand.

For a look at all of today’s economic events, check out our economic calendar.

About the Author

Vladimir is an independent trader and analyst with over 10 years of experience in the financial markets. He is a specialist in stocks, futures, Forex, indices, and commodities areas using long-term positional trading and swing trading.

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