Oil Prices Climb on Weak Dollar and US Inventory Drawdown

Oil Prices Climb on Weak Dollar and US Inventory Drawdown

Crude oil prices recovered some losses on Wednesday but traders are waiting for the delayed weekly inventory report due on Thursday. WTI is trading  high at 46.40 while Brent oil is at 48.76 . The on-going conversation between Russia and Saudi Arabia continues to keep traders on edge.  The oil price rally that followed the deal struck between Russia and Saudi Arabia did not last more than a day as some analysts feared. The two countries agreed on Monday to hold talks aimed at stabilizing the oil market.

A joint statement issued by the two oil giants after a meeting of their energy ministers in China on the sidelines of the G20 summit said they will not act immediately but hinted at the possibility of limiting output at a later stage. The statement however added that the agreement on cooperation in oil markets was to support the “stability of the oil market…ensuring a stable level of investment in the long term”.

Saudi Energy Minister Khalid Al Falih said: “There is no need now to freeze production.” “Freezing production is one of the preferred possibilities, but it does not have to happen specifically today,” Al Falih told reporters at the G20 meet. Oil prices hit their lowest level, falling to $27.67 a barrel at one point, in nearly 13 years early this year after nosediving from as high as $115 a barrel two years ago.

The CBOE Crude Oil Volatility Index jumped about 6% today on news that prominent OPEC nations signed an oil-cooperation agreement, which could lead to a freeze in output levels. The index neared its 52-week low in mid-August, but has risen about 20% since. Crude oil prices moved in volatile territory early Wednesday as investors waited for key banking and industry data as anticipation over production moves waned.

Iranian President Hassan Rouhani reiterated the country’s stance on production levels, telling the visiting secretary-general of the Organization of Petroleum Exporting Countries that market stability was a common interest.

“Instability and the fall in oil prices will damage member countries,” he was quoted as saying by SHANA, the Iranian Oil Ministry’s news website. “We hope that in light of prudence and cooperation and coordination among the OPEC members, the oil market will be stabilized with fair prices.”

Speculators may be holding out to gauge whether or not the gap between supply and demand is narrowing. The U.S. Energy Information Administration publishes that data on Thursday. Last week, EIA reported a larger-than-expected build in crude oil inventories, suggesting the market is still tilted toward the supply side.

The price of oil rose responding to a weakening US dollar – but gains were limited by continuing doubts over whether the major producers will agree to curb their production any time soon. Oil is traded in the US dollar, so when it falls against other currencies, the commodity becomes a more attractive investment for foreign buyers, pushing up the price.