Oil Prices Rebounding after Heavy Wednesday Losses

on Jan 19, 2017

Oil prices took a hammering yesterday with Brent crude dropping by 2.8% to $53.92 a barrel while WTI lost 2.67% to $51.08. Losses were accrued as the U.S. dollar strengthened considerably on comments made by Fed Chair Janet Yellen during a public address. She reconfirmed that the Fed expects to raise interest rates a few times throughout 2017, a pace currently expected to be held into 2019 when a ‘neutral’ 3% rate will have been reached. The current strength and near medium term prospects of the U.S. economy mean, according to Yellen, that the interest rate rises are necessary if a lid is to be kept on inflation.

The dollar had weakened in early part of the week on the back on contentious comments made by Trump indicating that his administration will take a protectionist stance on imports into the U.S.
Oil prices were further weighed upon by U.S. Energy Information Administration projections that U.S. shale production is set to rise by 40, 750 bpd in February, up to 4.748 million bpd. The EIA is today due to release weekly inventory data on oil supplies which is likely to provide the main catalyst for the next price movement.

Oil prices have today however staged a recovery this morning and reclaimed at least a part of yesterday’s losses. Brent crude gained 1.1% this morning to $54.50 a barrel and WTI 1% to $51.6.
With prices fluctuating up and down within a range over the past couple of weeks it is likely that any breakout will depend upon clear evidence that inventories are beginning to dwindle as supply cuts bite. Growing evidence that supply cuts are failing to reduce global inventories at the required pace will have the opposite effect. Clear evidence of either scenario would not be expected within the next month or two and in the meanwhile prices will take direction from clues, such as they are.
Gold prices are down on the strengthening dollar and Yellen’s hawkish stance on the U.S. economy. After reaching an 8-week high of $1,218.64 oz. on Tuesday, spot gold slid to $1,197.31 oz. at one point yesterday and was at $1,202 oz. early this morning, a 0.1% loss on yesterday’s close. Gold has risen by over 5% in 2017 to-date and 7% since December’s 10.5 month low.

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