Crude oil prices rebounded and settled for a modestly high level on Tuesday after the dollar drifted below its two-week high.
Prices recovered from overnight losses as supported by production interruptions in the US Gulf due to an anticipated tropical storm but remained limited as market players continued to monitor closely the persistent global oil glut.
Also supporting the oil rally is the report of stockpile data due later in the day. The American Petroleum Institute US stockpile data are scheduled to be posted later, and will be followed Wednesday by official Energy Information Administration (EIA) numbers.
The EIA is anticipated to report a 1.31 million barrels gain in US crude stocks in the latest week.
As of writing, Brent oil futures for November delivery on the London ICE Futures Exchange nudged up 0.65% to $49.77 after plunging 1.4% previously on Monday. Meanwhile, October delivery for crude oil futures on the NYMEX gained 0.87% to $47.38, and the day prior had the New York-traded oil futures tumble 1.39%.
The reasons remain the same as to why oil prices slumped on Monday: a stronger greenback buoyed by Fed Chair Yellen’s speech last Friday, waning hopes of an output freeze and worries about additional production from the Middle East and Africa.
US Dollar, Rate Hike
A raise in US interest rates tends to boost the dollar, which would make crude oil more costly for traders who engage in business in other currencies.
As it stands, the US dollar is climbing by 0.23% as of writing, to 95.75, close to its previous two-week peak of 95.83 hit earlier in Tuesday’s session and the highest since August 12. The dollar was lifted greatly amid indications the Federal Reserve is gearing up to pursue an interest rate hike as early as September, in time for its next policy meeting.
OPEC Conference, Production Freeze
Odds that the upcoming conference among major oil producers would yield an action to cap the global glut were minimal. This is after Saudi Arabia’s energy minister Khalid Al-Falih stated in the week prior that he does not trust any “significant intervention” in the oil market is needed.
His reported remarks come ahead of an informal meeting of the Organization of the Petroleum Exporting Countries (OPEC) in Algeria late next month, during which oil producers are projected to discuss a possible output freeze.
Analysts and traders remain unconvinced the meeting would result in a coherent effort to cut the global glut, but nonetheless, anticipation brought about the OPEC conference is propping up prices for crude futures.
Production Shutdown on Tropical Storm
Oil and gas operators in the US Gulf of Mexico have closed production equal to 168,334 barrels-per-day (bpd) of oil and 190 million cubic feet per day of natural gas as a precaution against an expected tropical storm, said the US Bureau of Safety and Environmental Enforcement on Monday.
On this weather disruption, crude oil prices rose further.
In the first three weeks of the month, oil prices jumped almost $10 a barrel or a nearly 25% during which the chance of a production freeze by the oil producers at the set informal OPEC meeting in September triggered a massive rally until August 22, when investors chose in to cash in their gains on doubts on the week-long rally.
This rally reversed that of July’s massive downwards trend that started on July 18, when signs of ongoing recovery in US drilling activity were reported. As it stands, the current position of crude futures are far off from July’s free fall.
But the current fundamentals are giving mixed signals on the direction of crude oil. Greenback has come off its two-week high, but is still broadly trading in the green nonetheless. The September OPEC meeting brings both uncertainties especially to analysts and traders, although speculations of glut-capping efforts linger to boost oil prices. The data to be posted regarding crude inventories are keeping prices buoyed as well.
It could be said that there is a great possibility of a continued rally until the next session, should stockpile data present signs of shrinking oil supply. The dollar would be a minor factor among the surrounding fundamentals, and the focus would still be on the upcoming OPEC conference.
In a weekly view of the crude oil chart, it remains between resistance and support levels of $48.67 and $44.39 respectively. Indicators are seemingly pointing downwards, but could still change course depending on the aforementioned fundamentals.